SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
Report on Form 6-K dated July 21, 2020
(Commission File No. 1-15024)
 

 
Novartis AG
(Name of Registrant)
 
 
Lichtstrasse 35
4056 Basel
Switzerland
(Address of Principal Executive Offices)
 


 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
 
Form 20-F: x
   
Form 40-F: o
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
 
Yes: o
   
No: x
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
 
Yes: o
   
No: x
 
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes: o
   
No: x
 

 



Exhibits:

99.1 Financial Report Q2 2020
99.2 Interim Financial Report
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Novartis AG
   
     
Date: July 21, 2020
By:
/s/ PAUL PENEPENT
     
 
Name:
Paul Penepent
 
Title:
Head Group Financial Reporting and Accounting
       
 

 
 
 
 
 
FINANCIAL RESULTS | RÉSULTATS FINANCIERS | FINANZERGEBNISSE
 
 
 
 
 
Novartis International AG
Novartis Global Communications
CH-4002 Basel
Switzerland
http://www.novartis.com
 
Novartis delivered strong H1 performance. FY 2020 guidance confirmed at higher end for core operating income and lower end for sales.
·
Due to COVID-19 first half results are more representative of underlying performance than Q2, sales growth of 6%  (cc1, +3% USD) and core¹ operating income growth of 19% (cc, +14% USD):
o
Innovative Medicines grew sales 7% (cc, +5% USD) and core operating income 16% (cc, +11% USD)
o
Sandoz grew sales 1% (cc, -2% USD) and core operating income 26% (cc, +19% USD)
·
Net sales in Q2 from continuing operations2 declined 1% (cc, -4% USD) largely reversing forward purchasing from Q1:
o
Key products continue growth, despite COVID-19, including: Zolgensma USD 205 million, Entresto USD 580 million (+40% cc), Cosentyx USD 944 million (+12% cc), Promacta/Revolade USD 422 million (+23% cc), Piqray USD 79 million and Kymriah USD 118 million (+103% cc)
o
Sandoz Biopharmaceuticals grew 19% (cc, +16% USD), with double digit growth in the EU and US
o
COVID-19 negatively impacted demand, particularly: Lucentis and mature ophthalmology (approximately USD 0.3 billion), new patient starts in dermatology and Sandoz retail
·
Q2 core operating income grew 6% (cc, +1% USD) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales
·
Q2 net income declined 4% (cc, -11% USD) mainly due to higher impairments
·
Q2 free cash flow1 of USD 3.6 billion (+1%), as favorable working capital offset divestments in prior year
·
Key Innovation Milestones:
o
Tabrecta approved in US for treatment of metastatic NSCLC with exon 14 skipping mutation
o
Cosentyx approved in EU and US for treatment of active nr-axSpA
o
Zolgensma IV conditionally approved in EU for SMA children up to 21kg
o
Enerzair received EC approval for treatment of uncontrolled asthma
o
Entresto, Tabrecta, Mayzent, Enerzair and Atectura simultaneously approved in Japan
·
Resolved legacy legal matters, including the settlements related to FCPA and US speaker programs
·
2020 guidance3 for continuing operations tightened within prior guidance ranges – Net sales expected to grow mid single digit; core operating income expected to grow low double digit
Basel, July 21, 2020 - commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:
“Novartis performed strongly in the first half, despite the impact from COVID-19, demonstrating the resilience and agility of our associates and operations. We continued to advance our broad range of efforts to support the COVID-19 pandemic response. Our growth drivers and launches continue their strong momentum, with Cosentyx and Entresto increasing market share in the US. We are on track to deliver on our commitment to drive consistent margin expansion and are excited by the progress of our deep mid to late stage pipeline to drive long-term growth”.
 
Key Figures
Continuing Operations
 
Q2 2020
Q2 2019
          % change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Net sales
11 347
11 764
-4
-1
 
23 630
22 870
3
6
Operating income
2 352
2 663
-12
-4
 
5 096
4 905
4
11
Net income
1 867
2 109
-11
-4
 
4 040
3 977
2
9
EPS (USD)
0.82
0.91
-10
-3
 
1.77
1.72
3
11
Free cash flow
3 631
3 612
1
 
 
5 652
5 481
3
 
Core operating income
3 669
3 648
1
6
 
7 846
6 902
14
19
Core net income
3 108
3 096
0
5
 
6 657
5 907
13
18
Core EPS (USD)
1.36
1.34
1
6
 
2.92
2.55
15
19

1 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. 2 Refers to continuing operations as defined on page 42 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz, as well as the continuing corporate functions. 3 Please see detailed guidance assumptions on page 8 including the forecast assumption that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.
 
____
1
 


COVID-19 Update
The COVID-19 situation continues to evolve and is taking differing courses across the multitude of geographies that Novartis operates in. Our primary concerns remain the health and safety of our associates and patients while we also continue to take strong actions to help address the pandemic.

During the second quarter, COVID-19 had an impact on our business with forward purchasing from the first quarter largely reversing. Despite this our operations remain stable with record high customer service levels. Our cash collections continue to be according to our normal trade terms, and days sales outstanding at normal levels. Our product portfolio remains resilient despite COVID-19 negatively impacting sales in April and May, particularly: Lucentis and mature ophthalmology, new patient starts in dermatology and Sandoz retail. Sales were mostly affected by lower new patient starts and significant reduction in patient visits to physicians. This impact showed improvement in the latter part of the quarter. Novartis is closely monitoring the situation and will provide an update with Q3 results. We implemented and embraced new ways of working, which include less travel and meeting costs. Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

At present drug development operations are continuing with manageable disruptions, with our SENSE and Site Cockpit digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate site-level disruptions. Thus far, these measures have limited COVID-related impacts to our expected submission timelines over the next several years. Phase III clinical trials evaluating canakinumab in patients with pneumonia as a result of SARS-CoV-2 infection, and ruxolitinib in combination with standard of care compared to SoC alone, in collaboration with Incyte, are continuing. Data readouts from these studies are expected in the second half of 2020. We continue to support 35+ ongoing investigator-initiated trials involving 10 Novartis medicines.

In July, Novartis launched a first-of-its-kind not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. The new portfolio of 15 medicines from the Sandoz division addresses urgent unmet needs of low and lower middle income countries to treat patients with COVID-19 symptoms. The portfolio will be sold at no profit to governments in up to 79 eligible low and lower middle income countries during the pandemic and until a vaccine or curative treatment is available.

Resolving legacy legal matters

We are continuing our long term journey to build trust with society and during the second quarter we resolved some of our legacy compliance issues. We finalized our USD 678 million settlement relating to a civil suit challenging speaker programs and other promotional events conducted in the US (2002 - 2011) as well as USD 51 million related to the company’s support of certain independent charitable co-pay foundations (2010 - 2014). Provisions for these settlements were previously made. Novartis has agreed to new corporate integrity obligations with the US Department of Health & Human Services that will mean we will continue to evolve our approach to peer-to-peer medical education. Such education will transition towards a digital format in keeping with the changes that we have made and seen to be effective in recent months. All Foreign Corrupt Practices Act (FCPA) investigations into Novartis are now closed with the settlement that we have reached with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC). As part of the settlements, Novartis and certain of its current and former subsidiaries agreed to pay USD 234 million to the DOJ and USD 113 million to the SEC.

Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 in the Condensed Interim Financial Report for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.
 
 
 
____
2
 


Continuing operations second quarter
Net sales were USD 11.3 billion (-4%, -1% cc) in the second quarter. Volume contributed 5 percentage points to sales growth driven by Entresto, Zolgensma and Cosentyx, partly offset by the impacts of COVID-19. Volume growth was offset by price erosion of 3 percentage points and negative impact from generic competition of 3 percentage points.
Operating income was USD 2.4 billion (-12%, -4% cc) mainly due to lower sales and higher impairments partly offset by lower spending and improved gross margin.
Net income was USD 1.9 billion (-11%, -4% cc) mainly due to lower operating income. EPS was USD 0.82 (-10%, -3% cc), decreasing less than net income benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 3.7 billion (+1%, +6% cc) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales. Core operating income margin was 32.3% of net sales, increasing by 1.3 percentage points (+2.1 percentage points cc).
Core net income was USD 3.1 billion (0%, +5% cc) mainly driven by growth in core operating income. Core EPS was USD 1.36 (+1%, +6% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.
Innovative Medicines net sales were USD 9.2 billion (-1%, +1% cc). Pharmaceuticals BU sales grew 1% (cc), as the launch uptake of Zolgensma and continuing momentum on Entresto and Cosentyx were mostly offset by the negative impact of the COVID-19 pandemic, particularly in ophthalmology and new patient starts in dermatology. Oncology BU grew 1% (cc) as the continuing momentum on Promacta/Revolade, Kymriah, Kisqali and Tafinlar + Mekinist as well as the launch uptake of Piqray was mostly offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy. Generic competition had a negative impact of 4 percentage points, mainly driven by Afinitor, Exjade and Travatan, and net pricing had a negative impact of 4 percentage points. Volume contributed 9 percentage points to sales growth.
Sandoz net sales were USD 2.2 billion (-11%, -9% cc) as volume declined 9 percentage points (cc) and pricing was in line with prior year, benefiting from favorable revenue deduction adjustments. The sales decline was due to COVID-19 negative impacts, mainly the reversal of Q1 forward purchasing and lower retail demand, some contract discontinuations in the US and a higher prior year base that included several first to market launches. The decline was partly offset by global sales of Biopharmaceuticals growing 19% (cc), driven by double digit growth in Europe and the US.

Continuing operations first half
Net sales were USD 23.6 billion (+3%, +6% cc) in the first half mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 11 percentage points to sales growth, despite being impacted by COVID-19Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 2 percentage points.
Operating income was USD 5.1 billion (+4%, +11% cc) mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestments.
Net income was USD 4.0 billion (+2%, +9% cc) mainly driven by higher operating income, partly offset by higher financial expenses. EPS was USD 1.77 (+3%, +11% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.
Core operating income was USD 7.8 billion (+14%, +19% cc) mainly driven by higher sales and improved gross margin, partly offset by launch investments. Core operating income margin was 33.2% of net sales, increasing by 3.0 percentage points (+3.8 percentage points cc).
Core net income was USD 6.7 billion (+13%, +18% cc) mainly driven by growth in core operating income. Core EPS was USD 2.92 (+15%, +19% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
 
 
____
3
 


Free cash flow from continuing operations amounted to USD 5.7 billion (+3%) compared to USD 5.5 billion in the prior year period. This increase was mainly driven by higher operating income adjusted for non-cash items and other adjustments, partly offset by lower divestment proceeds.
Innovative Medicines net sales were USD 18.9 billion (+5%, +7% cc). Pharmaceuticals BU grew 8% (cc) driven by Entresto (+50% cc), Zolgensma (USD 0.4 billion), Cosentyx (+15% cc) and the Xiidra acquisition, partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 6% (cc) driven by Promacta/Revolade (+28% cc), Piqray (USD 0.2 billion) and Kisqali (+64% cc). Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 3 percentage points. Net pricing had a negative impact of 3 percentage points.
Sandoz net sales were USD 4.7 billion (-2%, +1% cc). Volume growth of 3 percentage points (cc), partially offset by 2 percentage points (cc) of price erosion, benefiting from favorable revenue deduction adjustments. Sales in Europe grew 5% (cc), while sales in the US declined 12%, driven by oral solids. Global sales of Biopharmaceuticals grew 25% (cc), driven by strong double digit growth in Europe and the US.
Discontinued operations
Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first half of the prior year includes three months of operating results of the divested business.
In the first half of 2020, there were no activities related to discontinued operations. In the first half of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.      
Total Group first half
For the total Group, net income amounted to USD 4.0 billion compared to USD 8.6 billion in prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 1.77 compared to USD 3.70 in prior year. Cash flow from operating activities for the total Group amounted to USD 6.5 billion and free cash flow to USD 5.7 billion.
Key growth drivers
Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in order of contribution to Q2 growth) including:
Zolgensma
(USD 205 million) driven by US sales as newborn screening continues to progress with 28 states representing 60% of newborns. Additional growth was driven by geographic expansion outside of US.
Entresto
(USD 580 million, +40% cc) delivered sustained growth and increased market share, driven by demand as the essential first choice therapy for HF patients.
Cosentyx
(USD 944 million, +12% cc) continued growth across indications and grew market share in the US. Growth was impacted by COVID-19 related disruption to dermatology and rheumatology practices.
Promacta/Revolade
(USD 422 million, +23% cc) grew at a double digit rate in most regions driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.
Xiidra
(USD 79 million) was impacted by COVID-19 related disruption as ophthalmology visits declined significantly.
Piqray
(USD 79 million) grew in the US driven by strong demand.
Kymriah
(USD 118 million, +103% cc) grew strongly in Europe and US. More than 240 qualified treatment centers and 25 countries have coverage for at least one indication. The EMA approved manufacturing at Novartis owned facilities in Stein, Switzerland.
 
 
____
4
 

Kisqali
(USD 159 million, +49% cc) continued strong double-digit growth driven by demand in all geographies, benefiting from the impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
Tafinlar + Mekinist
(USD 371 million, +12% cc) continued to show growth driven by demand in adjuvant melanoma as well as NSCLC.
Beovu
(USD 34 million) is approved in more than 30 countries. Post marketing cases termed as “retinal vasculitis” and/or “retinal vascular occlusion” that may result in severe vision loss, typically associated with intraocular inflammation and the current COVID-19 situation had an unfavorable impact on US sales.
Mayzent
(USD 34 million) grew vs. Q1’20 despite new patients starts being impacted by COVID-19. Patient uptake showed signs of improvement towards the end of Q2.
Adakveo
(USD 21 million) US launch is progressing well, with close to 100% brand awareness among hematologists. Payer coverage is expanding, including published Medicaid policies in 19 states and 85% coverage among commercial plans. The permanent J-code took effect July 1.
Biopharmaceuticals
(USD 466 million, +19% cc) driven by continued double digit growth in Europe and the US (Biosimilars, biopharmaceutical contract manufacturing and Glatopa).
Emerging Growth Markets
Which comprises all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand, sales grew 5% (cc) including China (USD 625 million), which grew 20% (cc).


Net sales of the top 20 Innovative Medicines products in 2020

 
Q2 2020
                 % change
H1 2020
                % change
 
USD m
USD
cc
USD m
USD
cc
Cosentyx
 944
10
12
1 874
14
15
Gilenya
 738
-11
-9
1 510
-5
-4
Entresto
 580
38
40
1 149
48
50
Tasigna
 480
3
5
 967
7
9
Lucentis
 401
-25
-24
 888
-17
-15
Promacta/Revolade
 422
21
23
 825
26
28
Tafinlar + Mekinist
 371
9
12
 737
16
19
Sandostatin
 341
-15
-13
 715
-10
-8
Jakavi
 310
9
14
 628
16
20
Gleevec/Glivec
 288
-11
-8
 617
-2
0
Galvus Group
 279
-13
-8
 617
-3
1
Xolair
 289
0
4
 596
4
8
Afinitor/Votubia
 266
-34
-33
 562
-27
-26
Diovan Group
 268
-5
0
 542
0
4
Exforge Group
 238
-10
-5
 496
-7
-3
Ilaris
 200
21
23
 413
31
33
Zolgensma
 205
nm
nm
 375
nm
nm
Exjade/Jadenu
 163
-36
-35
 335
-32
-31
Votrient
 162
-16
-14
 328
-14
-12
Kisqali
 159
43
49
 320
58
64
Top 20 products total
7 104
0
2
 14 494
6
8
nm = not meaningful
 
 
____
5
 


R&D Update - key developments from the second quarter
New approvals and regulatory update
Zolgensma
 
IV formulation
 
 
IT formulation
 
Received EU conditional approval for patients with SMA and a clinical diagnosis of Type 1 or SMA patients with up to three copies of the SMN2 gene. The approval covers babies and young children with SMA up to 21 kg. Commercial product was made available in the EU from July 1.
 
Continued dialogue with FDA on partial clinical hold. Plan to approach FDA for pre-BLA meeting with a BLA submission in 2021.
Tabrecta
(Capmatinib)
 
Tabrecta (formerly INC280) is the first and only therapy approved by the FDA to specifically target metastatic NSCLC with a mutation that leads to MET exon 14 skipping (METex14). Approximately 4,000-5,000 patients are diagnosed with METex14 metastatic NSCLC each year in the US and may face poor prognoses due to presence of the mutation.
Enerzair Breezhaler (QVM149)
Received EC approval in July, as the first-in-class inhaled LABA/LAMA/ICS combination for uncontrolled asthma, including the first digital companion that can be prescribed with a treatment for uncontrolled asthma in the EU.
Cosentyx
Received US and EU approval for treatment of patients with non-radiographic axSpA, the fourth indication after moderate to severe plaque psoriasis, psoriatic arthritis and ankylosing spondylitis.
Cosentyx also received a positive CHMP opinion for the treatment of pediatric psoriasis.
China health authority NMPA approved Cosentyx for the treatment of adults with ankylosing spondylitis.
Piqray
Piqray in combination with fulvestrant received a positive CHMP opinion to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation.
Ilaris
Granted a new indication in the US for active Still’s disease including Adult-Onset Still’s Disease (AOSD). This is the first FDA-approved treatment for AOSD.
Xolair
Received a positive CHMP opinion for treatment of adults with severe chronic rhinosinusitis with nasal polyps (CRSwNP) inadequately controlled with intranasal corticosteroids.
Beovu
FDA approved label update to include additional safety information. The update includes characterization of adverse events, retinal vasculitis and retinal vascular occlusion, as part of the spectrum of intraocular inflammation observed in the HAWK and HARRIER trials and noted in the original prescribing information.
Ofatumumab
FDA extended its review of the sBLA for ofatumumab, a self-administered, targeted B-cell therapy for patients with relapsing multiple sclerosis. Regulatory action is now expected in September 2020.
Entresto
Tabrecta
Mayzent
Enerzair
Atectura
Japan MHLW simultaneously approved five new treatments for Japanese patients.
Entresto in chronic heart failure
Tabrecta for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC
Mayzent in secondary progressive MS
Enerzair (glycopyrronium bromide, indacaterol acetate, mometasone furoate)
Atectura (indacaterol acetate, mometasone furoate) in different forms of asthma.

 
 
____
6
 


Regulatory submissions and filings
Entresto HFpEF
File accepted in the US.
Xiidra EU
Filing has been withdrawn following objections raised by the CHMP during the application process that Novartis recognized could not be resolved within the available timeframe.
Results from ongoing trials and other highlights
Beovu
A post-hoc analysis presented at ARVO showed that lower levels of any fluid (intra-retinal fluid, sub-retinal fluid or pigment-epithelial detachment volume) were associated with better visual outcomes, suggesting that all three fluids are relevant for visual outcomes in wet AMD. In the post-hoc analysis, more patients on Beovu experienced reduced levels of fluid.
Cosentyx
Phase III PREVENT data show Cosentyx 150 mg provided significant and sustained improvement in signs and symptoms of non-radiographic axial spondyloarthritis (nr-axSpA) up to Week 52.
Ofatumumab
A post hoc analysis presented at European Academy of Neurology showed 47.0% and 87.8% of patients treated with ofatumumab achieved no evidence of disease activity (NEDA-3) within the first (0–12 months) and second year (12–24 months) of treatment, respectively.
Kisqali
MONALEESA-7 and MONALEESA-3 subgroup analysis presented during the 2020 ASCO Virtual Scientific Program showed Kisqali plus endocrine therapy extended life compared to endocrine therapy for patients with liver metastases – showing ~47% and 37% reduction in the risk of death in M7 and M3, respectively.
Tafinlar + Mekinist
5-year data presented at the 2020 ASCO Virtual Scientific Program showed more than half of patients with BRAF-mutated advanced melanoma taking Tafinlar + Mekinist were alive and free of a relapse.
Enerzair Breezhaler (QVM149)
Phase IIIb ARGON study met primary endpoint, demonstrating non-inferiority in improving quality of life in people with uncontrolled asthma compared to a free combination of two existing inhaled treatments, twice-daily Sal/Flu plus once-daily tiotropium (Tio).
Adriforant
(ZPL389)
Based on a full review of an interim analysis of the Phase IIb ZEST trial, the efficacy data did not meet the pre-specified criteria to pursue adriforant (ZPL389) clinical trials in atopic dermatitis. The recommendation to stop the trial was not based on any safety concerns.

 
 
____
7
 


Capital structure and net debt
Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.
During the first half of 2020, 25.6 million shares (for an equity value of USD 1.2 billion) were delivered as a result of options exercised and share deliveries related to participation plans of associates. In the same period, 1.6 million shares (for an equity value of USD 0.1 billion) were repurchased from associates. Consequently, the total number of shares outstanding increased by 24.0 million versus December 31, 2019. Novartis aims to offset the dilutive impact from equity based participation plans of associates over the remainder of the year. These treasury share transactions resulted in an equity increase of USD 1.1 billion and a net cash inflow of USD 0.7 billion, mainly related to option proceeds.
In the second quarter of 2020, Novartis repaid the USD 1.0 billion, 4.4% coupon bond issued in March 2010 at maturity.
As of June 30, 2020, the net debt increased by USD 10.6 billion to USD 26.5 billion versus December 31, 2019. The increase was mainly driven by the acquisition of The Medicines Company for USD 9.6 billion and the USD 7.0 billion annual dividend payment, partly offset by USD 5.7 billion free cash flow during the first half of 2020.
As of Q2 2020, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.
The Group has not experienced liquidity or cash flow disruptions during the first half of 2020 due to the COVID-19 pandemic. We believe that Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.
2020 Outlook
Barring unforeseen events
Continuing operations (Excluding Alcon from both 2019 and 2020)

 

Net Sales
Expected to grow mid single digit (cc)
From a divisional perspective, we expect net sales performance (cc) in 2020 to be as follows:
 Innovative Medicines: expected to grow mid single digit
 Sandoz: expected to grow low single digit
Core operating income
Expected to grow low double digit (cc)

Our guidance assumes that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.
 
Foreign exchange impact
If mid-July exchange rates prevail for the remainder of 2020, the foreign exchange impact for the year would be negative 1 to 2 percentage points on net sales and negative 4 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.
 
 
 
____
8
 

Key Figures
Continuing operations¹ ²
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Net sales
11 347
11 764
-4
-1
23 630
22 870
3
6
Operating income
2 352
2 663
-12
-4
5 096
4 905
4
11
As a % of sales
20.7
22.6
 
 
21.6
21.4
 
 
Core operating income
3 669
3 648
1
6
7 846
6 902
14
19
As a % of sales
32.3
31.0
 
 
33.2
30.2
 
 
Net income
1 867
2 109
-11
-4
4 040
3 977
2
9
EPS (USD)
0.82
0.91
-10
-3
1.77
1.72
3
11
Core net income
3 108
3 096
0
5
6 657
5 907
13
18
Core EPS (USD)
1.36
1.34
1
6
2.92
2.55
15
19
Cash flows from
operating activities
3 961
3 111
27
 
6 489
5 445
19
 
Free cash flow
3 631
3 612
1
 
5 652
5 481
3
 
                 
Innovative Medicines
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Net sales
9 188
9 326
-1
1
18 943
18 106
5
7
Operating income
2 033
2 564
-21
-15
4 788
4 673
2
9
As a % of sales
22.1
27.5
 
 
25.3
25.8
 
 
Core operating income
3 301
3 306
0
5
6 908
6 228
11
16
As a % of sales
35.9
35.4
 
 
36.5
34.4
 
 
                 
Sandoz
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Net sales
2 159
2 438
-11
-9
4 687
4 764
-2
1
Operating income
321
282
14
25
276
555
-50
-40
As a % of sales
14.9
11.6
 
 
5.9
11.6
 
 
Core operating income
475
501
-5
1
1 148
962
19
26
As a % of sales
22.0
20.5
 
 
24.5
20.2
 
 
                 
Corporate
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Operating loss / income
-2
-183
nm
nm
32
-323
nm
nm
Core operating loss
-107
-159
33
34
-210
-288
27
28
                 
Discontinued operations
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Net sales
 
 
 
 
 
1 777
 
 
Operating  income
 
 
 
 
 
71
 
 
Core operating income
 
 
 
 
 
350
 
 
Net Income
 
4 691
 
 
 
4 590
 
 
                 
Total Group
Q2 2020
Q2 2019
               % change
H1 2020
H1 2019
               % change
 
USDm
USDm
USD
cc
USDm
USDm
USD
cc
Net income
1 867
6 800
-73
-70
4 040
8 567
-53
-49
EPS (USD)
0.82
2.94
-72
-70
1.77
3.70
-52
-49
Core net income
3 108
3 096
0
5
6 657
6 185
8
12
Core EPS (USD)
1.36
1.34
1
6
2.92
2.67
9
14
Cash flows
from operating activities
3 961
3 111
27
 
6 489
5 523
17
 
Free cash flow
3 631
3 612
1
 
5 652
5 419
4
 
nm = not meaningful
 
               
1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio as well as the continuing corporate functions and discontinued operations include the business of Alcon. See page 42 of the Condensed Interim Financial Report for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
Detailed financial results accompanying this press release are included in the Condensed Interim Financial Report at the link below:
https://ml-eu.globenewswire.com/resource/download/bed749ce-ebd9-4018-ab0d-27d775c7c2c8
 
____
9
 


Disclaimer
This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, that can generally be identified by words such as “continue,” “growth,” “expected,” “to grow,” “demonstrating,” “to advance,” “to support,” “increasing,” “to deliver,” “to drive,” “to evolve,” “remain,” “taking,” “to take,” “to help,” “trends,” “continuing,” “allowing,” “to start,” “ evaluating,” “will,” “until,” “to build,” “evolve,” “launch,” “continued,” “continues,” “to progress,” “may,” “retaining,” “remains,” “believe,” “including,” “can,” “to create,” “to find,” “estimated,” “impact,” “ongoing,” “submissions,” “focus,” “launches,” “launch investments,” “innovation,” “potential,” “guidance,” “commitment,” “pipeline,” “aims,” “momentum,” “could,” “would,” “launched,” “on track,” “growing,” “progressing,” “expanding,” “pending,” “strongly,” “priority,” “filings,” “outlook,” “unforeseen,” “forecast,” “prevail,” “enter,” “to improve,” “transformative,” “innovative,” “inventive,” “manageable disruptions,” “expect,” “planned,” “working,” “monitoring,” “anticipated,” “continuously,” “on track,” or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, potential product launches, or regarding potential future revenues from any such products; or regarding our estimates of the impact of past and future COVID-19 related forward purchasing on sales and on our performance; or regarding the impact of the COVID-19 pandemic on clinical trials, and research and development timelines; or regarding potential future, pending or announced transactions; regarding potential future sales or earnings of the Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions; or regarding the Group’s liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding efforts to provide a not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; the impact of a partial or complete failure of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in the second half of 2020; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the transactions described, may not be realized or may be more difficult or take longer to realize than expected; the uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data; our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years and is expected to continue this year; safety, quality, data integrity, or manufacturing issues; uncertainties involved in the development or adoption of potentially transformational technologies and business models; uncertainties regarding actual or potential legal proceedings, investigations or disputes; our performance on environmental, social and governance measures; general political, economic and business conditions, including the effects of and efforts to mitigate pandemic diseases such as COVID-19; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. Novartis is providing the information in this press release as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.
 
All product names appearing in italics are trademarks owned by or licensed to Novartis Group companies.

 
 
 
 
 
____
10
 


About Novartis
Novartis is reimagining medicine to improve and extend people’s lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 110,000 people of more than 145 nationalities work at Novartis around the world. Find out more at https://www.novartis.com.

Novartis will conduct a conference call with investors to discuss this news release today at 14:00 Central European time and 8:00 Eastern Time. A simultaneous webcast of the call for investors and other interested parties may be accessed by visiting the Novartis website. A replay will be available after the live webcast by visiting. https://www.novartis.com/investors/event-calendar

Detailed financial results accompanying this press release are included in the condensed interim financial report at the link below. Additional information is provided on Novartis divisions and pipeline of selected compounds in late stage development and a copy of today's earnings call presentation can be found at. https://www.novartis.com/investors/event-calendar

Important dates
September 01, 2020
 
ESG investor day
October 27, 2020
 
Third quarter results 2020
November 24, 2020
 
Capital Markets day



 
 
____
11
 

 
 
 
 
 
 
 
 
 
 
 
 
 

Novartis Second Quarter and Half Year 2020

Condensed interim financial report – Supplementary Data





















Novartis Global Communications

 
 

 
 

 
 
____
1
 


Novartis Second Quarter and Half Year 2020
Condensed Interim Financial Report – Supplementary Data
INDEX
Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
 
Group
3
Innovative Medicines
8
Sandoz
14
CASH FLOW AND GROUP BALANCE SHEET
16
INNOVATION REVIEW
20
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
Consolidated income statements
24
Consolidated statements of comprehensive income
26
Consolidated balance sheets
27
Consolidated statements of changes in equity
28
Consolidated statements of cash flows
31
Notes to condensed consolidated interim financial statements, including update on legal proceedings
33
SUPPLEMENTARY INFORMATION
54
CORE RESULTS
 
Reconciliation from IFRS to core results
55
Group
57
Innovative Medicines
59
Sandoz
60
Corporate
61
Discontinued operations
62
ADDITIONAL INFORMATION
 
Income from associated companies
63
Condensed consolidated changes in net debt / Share information
63
Free cash flow
64
Effects of currency fluctuations
66
DISCLAIMER
68

 
 
____
2
 


Novartis Second Quarter and Half Year 2020
Condensed Interim Financial Report – Supplementary Data
Group

Key figures 1
Q2 2020
Q2 2019
% change
H1 2020
H1 2019
% change
 
USDm
USDm
USD
cc2
USDm
USDm
USD
cc2
 
Net sales to third parties from continuing operations
11 347
11 764
-4
-1
23 630
22 870
3
6
 
Divisional operating income from continuing operations
2 354
2 846
-17
-11
5 064
5 228
-3
4
 
Corporate income and expense, from continuing operations, net
-2
-183
nm
nm
32
-323
nm
nm
 
Operating income from continuing operations
2 352
2 663
-12
-4
5 096
4 905
4
11
 
As % of net sales
20.7
22.6
 
 
21.6
21.4
 
 
 
Income from associated companies
183
176
4
5
306
256
20
20
 
Interest expense
-220
-205
-7
-10
-459
-431
-6
-8
 
Other financial income and expense
-27
0
nm
nm
-34
44
nm
nm
 
Taxes
-421
-525
20
13
-869
-797
-9
-17
 
Net income from continuing operations
1 867
2 109
-11
-4
4 040
3 977
2
9
 
Net income from discontinued operations
 
4 691
 
 
 
4 590
 
 
 
Net income
1 867
6 800
-73
-70
4 040
8 567
-53
-49
 
Basic earnings per share from continuing operations (USD)
0.82
0.91
-10
-3
1.77
1.72
3
11
 
Basic earnings per share from discontinued operations (USD)
 
2.03
 
 
 
1.98
 
 
 
Basic earnings per share (USD)
0.82
2.94
-72
-70
1.77
3.70
-52
-49
 
Cash flows from operating activities from continuing operations
3 961
3 111
27
 
6 489
5 445
19
 
 
Free cash flow from continuing operations
3 631
3 612
1
 
5 652
5 481
3
 
 
                   
Core
 
 
 
 
 
 
 
 
 
Core operating income from continuing operations
3 669
3 648
1
6
7 846
6 902
14
19
 
As % of net sales
32.3
31.0
 
 
33.2
30.2
 
 
 
Core net income from continuing operations
3 108
3 096
0
5
6 657
5 907
13
18
 
Core net income from discontinued operations
 
 
 
 
 
278
 
 
 
Core net income
3 108
3 096
0
5
6 657
6 185
8
12
 
Core basic earnings per share from continuing operations (USD)
1.36
1.34
1
6
2.92
2.55
15
19
 
Core basic earnings per share from discontinued operations (USD)
 
 
 
 
 
0.12
 
 
 
Core basic earnings per share (USD)
1.36
1.34
1
6
2.92
2.67
9
14
 
nm = not meaningful
                 
1 Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio and Corporate activities and discontinued operations include the business of Alcon. See page 42 for full explanation.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.

COVID-19 Impacts

·
First half results, sales grew 6% (cc) and core operating income grew 19% (cc), are more representative of performance than Q2 as Q1 forward purchasing largely reversed.
·
Our operations remain stable with record high customer service levels. Product flow across country borders is working smoothly.
·
Our cash collections continue to be according to our normal trade terms and days sales outstanding remains at normal levels.
·
Our product portfolio remains resilient despite COVID-19 negatively impacting demand in April and May, particularly: Lucentis and mature ophthalmology (approximately USD 0.3 billion in Q2), new
 
____
3
 

 
 
patient starts in dermatology and Sandoz retail. There was some increase in demand for oral chronic treatments.
·
Sales were mostly affected by lower new patient starts and significant reduction in patient visits to physicians. This impact showed improvement in the latter part of the quarter. Novartis is closely monitoring the situation and will provide an update with Q3 results.
·
We implemented and embraced new ways of working, which include less travel and meeting costs.
·
At present drug development operations are continuing with manageable disruptions. Thus far, these measures have limited COVID-19 related impacts to our expected submission timelines over the next several years.
·
Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business dynamics.
·
First half dynamics are reflected in our full year guidance, which assumes that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020.

Financials
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 for a full explanation.
The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.

Continuing operations second quarter
Net sales
Net sales were USD 11.3 billion (-4%, -1% cc) in the second quarter. Volume contributed 5 percentage points to sales growth driven by Entresto, Zolgensma and Cosentyx, partly offset by the impacts of COVID-19. Volume growth was offset by price erosion of 3 percentage points and negative impact from generic competition of 3 percentage points.

Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an expense of USD 2 million compared to an expense of USD 183 million in the second quarter of 2019, mainly driven by favorable contributions from the Novartis Venture Fund.

Operating income
Operating income was USD 2.4 billion (-12%, -4% cc) mainly due to lower sales and higher impairments, partly offset by lower spending and improved gross margin.
Core operating income was USD 3.7 billion (+1%, +6% cc) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales. Core operating income margin was 32.3% of net sales, increasing by 1.3 percentage points (+2.1 percentage points cc).
Income from associated companies
Income from associated companies increased from USD 176 million in prior year to USD 183 million in the second quarter of 2020 driven by a higher estimated share of income from Roche Holding AG.

Core income from associated companies increased from USD 253 million in prior year to USD 272 million in the second quarter of 2020 driven by a higher estimated core income contribution from Roche Holding AG for the current period.

 
____
4
 

Interest expense and other financial income/expense
Interest expense amounted to USD 220 million compared to prior year interest expense of USD 205 million. Other financial income and expense amounted to a loss of USD 27 million compared to prior year when they were negligible mainly due to lower interest income for the current period.
Taxes
The tax rate for continuing operations in the second quarter was 18.4% compared to 19.9% in the prior year. The second quarter tax rate was negatively impacted by the effect of adjusting to the updated estimated full year tax rate. The prior year second quarter tax rate was impacted by the Swiss federal tax reform and a change to uncertain tax positions.

Excluding these impacts, the second quarter tax rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate for continuing operations was 16.0% compared to 16.7% in prior year.

Net income, EPS and Free cash flow
Net income was USD 1.9 billion (-11%, -4% cc) mainly due to lower operating income. EPS was USD 0.82 (-10%, -3% cc), decreasing less than net income benefiting from lower weighted average number of shares outstanding.
 
Core net income was USD 3.1 billion (0%, +5% cc) mainly driven by growth in core operating income. Core EPS was USD 1.36 (+1%, +6% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
 
Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.
Continuing operations first half
Net sales
Net sales were USD 23.6 billion (+3%, +6% cc) in the first half mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 11 percentage points to sales growth, despite being impacted by COVID-19. Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 2 percentage points.

Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 32 million, compared to an expense of USD 323 million in the first half of 2019, mainly driven by royalty settlement gain related to intellectual property rights and favorable contributions from the Novartis Venture Fund.

Operating income
Operating income was USD 5.1 billion (+4%, +11% cc) mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestments.
 
Core operating income was USD 7.8 billion (+14%, +19% cc) mainly driven by higher sales and improved gross margin, partly offset by launch investments. Core operating income margin was 33.2% of net sales, increasing by 3.0 percentage points (+3.8 percentage points cc).
Income from associated companies
Income from associated companies amounted to USD 306 million in the first half compared to USD 256 million in the prior year.
 
 
____
5
 

The share of income from Roche was USD 308 million compared to USD 257 million in the prior year. The estimated income for Roche Holding AG, net of amortization, was USD 372 million compared to USD 343 million in the prior year. This was partly offset by the negative prior year true up of USD 64 million in the first quarter of 2020, compared to a negative prior year true up of USD 129 million recognized in the first quarter of 2019. In addition, a USD 43 million income from the revaluation of the deferred tax liability, recognized upon initial accounting for the Roche investment, was recorded in the first quarter of 2019, following a change in the enacted tax rate in February 2019, of the Swiss Canton Basel-Stadt, effective January 1, 2019.

Core income from associated companies in the first half increased to USD 580 million compared to USD 531 million in prior year driven by a higher estimated core income contribution from Roche Holding AG. The core income contribution from Roche Holding AG increased to USD 582 million from USD 532 million in the prior year, driven by a higher estimated core income contribution from Roche for the current period. In addition a favorable prior year core income true up of USD 38 million was recorded in the first quarter of 2020, compared to a favorable true up of USD 32 million in the first quarter of 2019.

Interest expense and other financial income/expense
Interest expense increased to USD 459 million from USD 431 million in the prior year, mainly due to an increase in interest expense from discounting long term liabilities.

Other financial income and expense amounted to a loss of USD 34 million compared to an income of USD 44 million in prior year mainly due to lower interest income for the current period.

Taxes
The tax rate for continuing operations in the first half was 17.7% compared to 16.7% in the prior year. The tax rate was negatively impacted by the effect of non-deductible legal settlement expenses in the first half and the impact of Swiss tax reform in the prior year.

Excluding these impacts, the first half tax rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.

Net income, EPS and Free cash flow
Net income was USD 4.0 billion (+2%, +9% cc) mainly driven by higher operating income, partly offset by higher financial expenses. EPS was USD 1.77 (+3%, +11% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.
Core net income was USD 6.7 billion (+13%, +18% cc) mainly driven by growth in core operating income. Core EPS was USD 2.92 (+15%, +19% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.
Free cash flow from continuing operations amounted to USD 5.7 billion (+3%) compared to USD 5.5 billion in the prior year period. This increase was mainly driven by higher operating income adjusted for non-cash items and other adjustments, partly offset by lower divestment proceeds.

Discontinued operations
Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first half of the prior year includes three months of operating results of the divested business.
 
In the first half of 2020, there were no activities related to discontinued operations. In the first half of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3
 
 
____
6
 

“Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.
Total Group first half
For the total Group, net income amounted to USD 4.0 billion compared to USD 8.6 billion in prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 1.77 compared to USD 3.70 in prior year. Cash flow from operating activities for the total Group amounted to USD 6.5 billion and free cash flow to USD 5.7 billion.
 
 
____
7
 

Innovative Medicines
 
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
 USD m
USD
cc
 
USD m
USD m
USD
cc
Net sales
9 188
9 326
-1
1
 
18 943
18 106
5
7
Operating income
2 033
2 564
-21
-15
 
4 788
4 673
2
9
  As % of net sales
22.1
27.5
     
25.3
25.8
   
Core operating income
3 301
3 306
0
5
 
6 908
6 228
11
16
  As % of net sales
35.9
35.4
     
36.5
34.4
   

COVID-19 Impacts
First half results are more representative of performance as Q1 forward purchasing largely reversed in Q2. In Q2 there was significant disruption to practices limiting patient access to treatments, particularly in our ophthalmology and dermatology businesses. New patient starts slowed in most therapeutic areas. Sales were mostly affected in April and May, and showed improvement in June. Despite this, H1 sales grew 7% (cc) with core operating income growing 16% (cc) driven by the launch uptake of Zolgensma and Piqray as well as continuing momentum on Entresto, Cosentyx Promacta/Revolade, Kisqali, Kymriah and Tafinlar + Mekinist. Spending was lower in Q2 due to the pandemic, as we implemented and embraced new ways of working, which include lower travel and meeting costs. We will closely monitor the impact of these trends on future quarters.

Second quarter

Net sales
Net sales were USD 9.2 billion (-1%, +1% cc) as continued uptake in launches and growth drivers were offset by the impact of the COVID-19 pandemic, particularly in ophthalmology and new patient starts in dermatology. Generic competition had a negative impact of 4 percentage points, mainly due to Afinitor, Exjade and Travatan and net pricing had a negative impact of 4 percentage points. Volume contributed 9 percentage points to sales growth.
In the US (USD 3.5 billion) sales grew 5% driven by Zolgensma, Entresto, Cosentyx and Piqray. In Europe (USD 3.0 billion, -8%, -5% cc) sales declined despite continued strong performance of Entresto, Kymriah, Promacta and Kisqali. Japan sales were USD 0.6 billion (-8%, -10% cc). Emerging Growth Markets grew 1% (+9% cc), including double digit growth in China, with the launches of Entresto and Cosentyx.
Pharmaceuticals BU sales were broadly in line with prior year (USD 5.6 billion, -1%, +1% cc). Continued growth momentum from Zolgensma (USD 205 million), Entresto (USD 580 million, +38%, +40% cc) and Cosentyx (USD 944 million, +10%, +12% cc) was offset by the negative impact of the COVID-19 pandemic, particularly in Lucentis and mature ophthalmology (approximately USD 0.3 billion) and new patient starts in dermatology.
Oncology BU sales were also broadly in line with prior year (USD 3.5 billion, -2%, +1% cc). Strong performance of Promacta/Revolade (USD 422 million, +21%, +23% cc), Piqray (USD 79 million), Kymriah (USD 118 million, +103%, +103% cc) and Kisqali (USD 159 million, +43%, +49% cc) was offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy.
Operating income
Operating income was USD 2.0 billion (-21%, -15% cc) mainly due to lower divestment gains and higher impairments, partly offset by lower legal expenses. Operating income margin was 22.1% of net sales decreasing 5.4 percentage points (-4.2 percentage points in cc).
 
 
____
8
 


Core adjustments were USD 1.3 billion, mainly due to USD 0.7 billion for amortization. Core adjustments increased compared to prior year mainly due to lower divestment income and higher impairments and amortization, partly offset by lower legal provisions.
Core operating income was USD 3.3 billion (0%, +5% cc) mainly driven by lower spending. Core operating income margin was 35.9% of net sales, increasing 0.5 percentage points (+1.3 percentage points cc). Core gross margin increased by 0.4 percentage points (cc). Core R&D expenses as a percentage of net sales decreased by 0.7 percentage points (cc) mainly driven by productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A expenses declined by 1.0 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.8 percentage points (cc), mainly due to the Zolgensma pre-launch inventory provision release in prior year.
First half
Net sales
Net sales were USD 18.9 billion (+5%, +7% cc). Pharmaceuticals BU grew 5% (+8% cc) driven by Entresto (USD 1.1 billion, +48%, +50% cc), Zolgensma (USD 0.4 billion), Cosentyx (USD 1.9 billion, +14%, +15% cc) and the Xiidra acquisition, partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 4% (+6% cc) driven by Promacta/Revolade (USD 0.8 billion, +26%, +28% cc), Piqray (USD 0.2 billion) and Kisqali (USD 0.3 billion, +58%, +64% cc). Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 3 percentage points. Net pricing had a negative impact of 3 percentage points.
The US (USD 7.1 billion, +12%) delivered strong performance of Zolgensma, Cosentyx and Entresto. Europe sales (USD 6.4 billion, 0%, +3% cc) grew driven by Entresto, Jakavi, Kymriah and Kisqali. Japan sales were USD 1.2 billion (0%, -2% cc). Emerging Growth Markets sales grew (+5%, +11% cc), led by double digit growth in China, including the launches of Cosentyx and Entresto.
Operating income
Operating income was USD 4.8 billion (+2%, +9% cc), mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestment gains. Operating income margin was 25.3% of net sales, decreasing 0.5 percentage points (+0.4 percentage points cc).
Core adjustments were USD 2.1 billion, mainly due to USD 1.4 billion of amortization. Core adjustments increased compared to prior year mainly due to lower divestment income and higher amortization, partly offset by lower legal expenses.
Core operating income was USD 6.9 billion (+11%, +16% cc) mainly driven by sales growth and lower spending due to COVID-19 impacts, partly offset by launch investments. Core operating income margin was 36.5% of net sales, increasing 2.1 percentage points (+2.8 percentage points cc). Core gross margin increased by 0.7 percentage points (cc) mainly driven by productivity. Core R&D expenses as a percentage of net sales decreased by 1.3 percentage points (cc) mainly driven by the higher net sales, productivity and portfolio prioritization. Core SG&A expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.4 percentage points (cc).
 
 
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9
 


ONCOLOGY BUSINESS UNIT
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
 USD m
 USD m
USD
cc
 
 USD m
 USD m
USD
cc
Tasigna
 480
 468
3
5
 
 967
 902
7
9
Promacta/Revolade
 422
 349
21
23
 
 825
 656
26
28
Tafinlar + Mekinist1
 371
 340
9
12
 
 737
 637
16
19
Sandostatin
 341
 403
-15
-13
 
 715
 795
-10
-8
Jakavi
 310
 284
9
14
 
 628
 542
16
20
Gleevec/Glivec
 288
 323
-11
-8
 
 617
 630
-2
0
Afinitor/Votubia
 266
 401
-34
-33
 
 562
 774
-27
-26
Exjade/Jadenu
 163
 253
-36
-35
 
 335
 491
-32
-31
Votrient
 162
 193
-16
-14
 
 328
 380
-14
-12
Kisqali
 159
 111
43
49
 
 320
 202
58
64
Lutathera
 105
 109
-4
-3
 
 217
 215
1
1
Kymriah
 118
 58
103
103
 
 211
 103
105
106
Piqray
 79
 6
nm
nm
 
 153
 6
nm
nm
Adakveo
 21
 
nm
nm
 
 36
 
nm
nm
Other
 263
 308
-15
-13
 
 545
 594
-8
-6
Total Oncology business unit
3 548
3 606
-2
1
 
7 196
6 927
4
6
1 Majority of sales for Mekinist and Tafinlar are combination, but both can be used as monotherapy
nm = not meaningful


Tasigna (USD 480 million, +3%, +5% cc) grew due to a strong performance in key markets including the US and China, partly offset by a decline in Europe.
Promacta/Revolade (USD 422 million, +21%, +23% cc) grew at a double digit rate in most regions driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.
Tafinlar + Mekinist (USD 371 million, +9%, +12% cc), the worldwide leader in BRAF/MEK-inhibition, continued to show growth driven by demand in adjuvant melanoma as well as NSCLC.
Sandostatin (USD 341 million, -15%, -13% cc) sales declined due to competitive pressure in Europe, US and Japan. The brand was also impacted by generic competition in Europe and the COVID-19 pandemic in the US.
Jakavi (USD 310 million, +9%, +14% cc) grew in all regions, driven by demand in the myelofibrosis and polycythemia vera indications.
Gleevec/Glivec (USD 288 million, -11%, -8% cc) declined due to increased generic competition.
Afinitor/Votubia (USD 266 million, -34%, -33% cc) declined due to generic competition in the US, Europe and Emerging Growth Markets. 
Exjade/Jadenu (USD 163 million, -36%, -35% cc) declined due to pressure from generic competition in the US and other regions.
Votrient (USD 162 million, -16%, -14% cc) declined due to increased competition in Europe and the US.
Kisqali (USD 159 million, +43%, +49% cc) continued strong double digit growth driven by demand in the US, strong uptake in Europe and other regions benefiting from the ongoing impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
Lutathera (USD 105 million, -4%, -3% cc) declined versus prior year due to the negative impact of the COVID-19 pandemic. There are almost 350 total centers now actively treating patients. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 153 million.
Kymriah (USD 118 million, +103%, +103% cc) grew strongly in Europe and US. More than 240 qualified treatment centers and 25 countries have coverage for at least one indication. The EMA approved commercial manufacturing of Kymriah at the Novartis-owned facilities in Stein, Switzerland which will support existing manufacturing at the facility in Morris Plains, New Jersey, US.
Piqray (USD 79 million) grew in the US driven by strong demand. Piqray in combination with fulvestrant received a positive CHMP opinion to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation.
 
 
____
10
 

Piqray is the first and only therapy specifically for the approximately 40% of HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with poor prognosis.  
Adakveo (USD 21 million) US launch is progressing well, with close to 100% brand awareness among hematologists. Payer coverage decisions are expanding, including published Medicaid policies in 19 states and 85% coverage among commercial plans to date. The permanent J-code took effect July 1, which provides more confidence around the billing process. Adakveo was approved by the FDA following priority review as the first and only monthly therapy to reduce the frequency of pain crises, or vaso-occlusive crises (VOCs), in adults and pediatric patients aged 16 years and older with sickle cell disease.
 
PHARMACEUTICAL BUSINESS UNIT

IMMUNOLOGY, HEPATOLOGY and DERMATOLOGY
 
Q2 2020
Q2 2019
% change
 
H1 2020
 H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Cosentyx
 944
 858
10
12
 
1 874
1 649
14
15
Ilaris
 200
 165
21
23
 
 413
 316
31
33
Total Immunology, Hepatology and Dermatology
1 144
1 023
12
13
 
2 287
1 965
16
18
Xolair sales for all indications are reported in the Respiratory franchise
Cosentyx (USD 944 million, +10%, +12% cc) continued growth across indications and grew market share in the US. Growth was impacted by significant disruption to dermatology and rheumatology practices due to the COVID-19 pandemic. US sales grew 15% based on broad first line access across psoriasis, psoriatic arthritis and ankylosing spondylitis (AS). In April and June, respectively, Cosentyx received approval and launched in the EU and US for non-radiographic axial spondyloarthritis (nr-axSpA), its fourth major indication, which is now already launched in major markets including the US and Germany. In April, Cosentyx also became the first IL17A inhibitor approved in China for the treatment of AS. Cosentyx also received a positive CHMP opinion for pediatric psoriasis, reinforcing its strong safety profile.
Ilaris (USD 200 million, +21%, +23% cc) sales were driven by strong double digit volume growth, particularly in Europe and the US. In June, Ilaris was granted a new indication in the US for active Still’s disease including Adult-Onset Still’s Disease (AOSD); this is in addition to its previously-granted indication for systemic juvenile idiopathic arthritis (SJIA). Ilaris is the first FDA-approved treatment for AOSD.

OPHTHALMOLOGY
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Lucentis
 401
 536
-25
-24
 
 888
1 069
-17
-15
Xiidra
 79
 
nm
nm
 
 169
 
nm
nm
Beovu
 34
 
nm
nm
 
 102
 
nm
nm
Other
 423
 638
-34
-32
 
 974
1 266
-23
-21
Total Ophthalmology
 937
1 174
-20
-18
 
2 133
2 335
-9
-7
nm = not meaningful
Lucentis (USD 401 million, -25%, -24% cc) declined double digit versus prior year, as did the market, due to the negative impact of the COVID-19 pandemic, which has significantly disrupted ophthalmology practices and limited patient access to treatment of retinal diseases. Lucentis sales started to recover in May with confirmed positive trend in June.
Xiidra (USD 79 million) was impacted by COVID-19 as ophthalmology visits declined significantly. In the latter part of the quarter, the US dry eye market began to rebound as eye care practices began opening. A significant direct to consumer campaign was launched in the US in May with a new professional campaign rolling out over the summer. In an effort to support and expand patient access to care in the US, a new telemedicine program and new zero copay program launched at the end of June. Novartis has informed the European Medicines Agency of its decision to withdraw the centralized application for Marketing Authorization of Xiidra.
 
 
____
11
 

Beovu (USD 34 million) is now approved in more than 30 countries. Launches progress despite the operational challenges coming from the COVID-19 pandemic. Post marketing cases termed as “retinal vasculitis” and/or “retinal vascular occlusion” that may result in severe vision loss, typically associated with intraocular inflammation and the current COVID-19 situation had an unfavorable impact on US sales. Novartis initiated its own internal review of these post-marketing safety case reports including the establishment of an external Safety Review Committee (SRC) to provide an independent, objective review of these cases and a comparison with events seen in the brolucizumab Phase III trials (HAWK and HARRIER). Novartis also initiated a safety information update to Beovu prescribing information worldwide and in June 2020, the FDA approved a label update for Beovu to include additional safety information. Novartis has established a fully dedicated internal team collaborating with a coalition of top global experts to examine the root causes, risk factors, mitigation and potential treatment protocols. Novartis continues to believe Beovu represents an important treatment option for patients with wet AMD, with an overall favorable benefit-risk profile.
Other ophthalmology products declined due to the negative impact of the COVID-19 pandemic and generic impacts in the US, primarily for Travatan.

NEUROSCIENCE
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Gilenya
 738
 825
-11
-9
 
1 510
1 591
-5
-4
Zolgensma
 205
 15
nm
nm
 
 375
 15
nm
nm
Aimovig
 33
 24
38
45
 
 69
 42
64
72
Mayzent
 34
 5
nm
nm
 
 64
 5
nm
nm
Other
 15
 17
-12
-26
 
 27
 30
-10
-15
Total Neuroscience
1 025
 886
16
17
 
2 045
1 683
22
23
nm = not meaningful
Gilenya (USD 738 million, -11%, -9% cc) sales declined due to the impacts of the COVID-19 pandemic and increased competition. Gilenya remains the top prescribed high efficacy therapy in 40 countries around the world and the only one approved to treat pediatric RMS. Novartis is in US ANDA litigations with a generic manufacturer. In parallel, an appeal against a USPTO decision upholding the dosage regimen patent in IPR proceedings is ongoing.
Zolgensma (USD 205 million) newborn screening in the US continues to progress with 28 states representing 60% of newborns. Additional growth was driven by geographic expansion outside of the US. This includes the recent approval in Japan, with unrestricted reimbursement in place directly following approval by end of May; and approval in the EU, with immediate access to label in France (cohort ATU) and Germany, with the product in market as of July 1 and ~90% of patients covered through agreements already in place with sickness funds. We are in dialogue with all EU markets regarding our Day One access program, and have confidential agreements in place with five additional markets.
Mayzent (USD 34 million) grew versus the first quarter despite new patients starts being impacted by COVID-19. Patient uptake is showing signs of improvement towards the end of Q2.  Uptake is driven by important unmet needs in patients showing signs of progression despite being on other treatments. Mayzent is the first and only oral DMT studied and proven to delay disease progression in a broad SPMS patient population. In addition to the US and EU experience, Mayzent is now approved in Australia, Canada, China and Japan, and could be approved in Switzerland.
Aimovig (USD 33 million, +38%, +45% cc) is the most prescribed anti-CGRP worldwide, with more than 440,000 patients prescribed worldwide in the post-trial setting. It has now been launched for the preventive treatment of migraine in 44 countries and additional launches are underway. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales and Novartis has exclusive rights in all ex-US territories excluding Japan. The collaboration continues during the litigation between the companies and will remain in force until a final court resolution.
 
 
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12
 

CARDIOVASCULAR, RENAL AND METABOLISM

 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Entresto
 580
 421
38
40
 
1 149
 778
48
50
Other
 
 6
nm
nm
 
1
 12
-92
-98
Total Cardiovascular, Renal & Metabolism
 580
 427
36
38
 
1 150
 790
46
48
nm = not meaningful
Entresto (USD 580 million, +38%, +40% cc) delivered sustained growth and increased market share, driven by demand as the essential first choice therapy for HF patients. Entresto was approved in Japan on June 29 and launch is expected in H2 2020 while in the US Entresto filed with the FDA on April 22 an additional indication to treat HFpEF with a decision anticipated in Q1 2021. Novartis is in US ANDA litigation with generic manufacturers.

RESPIRATORY
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Xolair
 289
 290
0
4
 
 596
 571
4
8
Ultibro Group
 149
 166
-10
-7
 
 309
 323
-4
-1
Other
 6
 5
20
-10
 
 10
 12
-17
-18
Total Respiratory
 444
 461
-4
0
 
 915
 906
1
5
Xolair sales for all indications are reported in the Respiratory franchise
Xolair (USD 289 million, 0%, +4% cc) continued growth in constant currency in both indications, Severe Allergic Asthma (SAA) and Chronic Spontaneous Urticaria (CSU). Novartis co-promotes Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales.
Ultibro Group (USD 149 million, -10%, -7% cc) sales declined due to competitive pressures in all regions. Ultibro Group consists of inhaled COPD therapies Ultibro Breezhaler, Seebri Breezhaler and Onbrez Breezhaler.

ESTABLISHED MEDICINES
 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Galvus Group
 279
 320
-13
-8
 
 617
 635
-3
1
Diovan Group
 268
 283
-5
0
 
 542
 544
0
4
Exforge Group
 238
 264
-10
-5
 
 496
 531
-7
-3
Zortress/Certican
 106
 124
-15
-12
 
 233
 240
-3
0
Neoral/Sandimmun(e)
 96
 110
-13
-11
 
 197
 213
-8
-5
Voltaren/Cataflam
 82
 95
-14
-11
 
 174
 208
-16
-15
Other
 441
 553
-20
-16
 
 958
1 129
-15
-12
Total Established Medicines
1 510
1 749
-14
-9
 
3 217
3 500
-8
-5
Galvus Group (USD 279 million, -13%, -8% cc) declined primarily due to price reduction and inventory transfer cycle related to our co-promotion in Japan as well as generic competition in India.
Diovan Group (USD 268 million, -5%, 0% cc) declined in Europe and Japan, partly offset by growth in Emerging Growth Markets.
Exforge Group (USD 238 million, -10%, -5% cc) declined in Europe due to generic competition, partly compensated by growth in Emerging Growth Markets.
Zortress/Certican (USD 106 million, -15%, -12% cc) declined mainly due to generic competition in the US.
Neoral/Sandimmun(e) (USD 96 million, -13%, -11% cc) declined mainly due to generic competition and mandatory price reductions.
Voltaren/Cataflam (USD 82 million, -14%, -11% cc) declined mainly due to generic competition.
 
 
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13
 

Sandoz

 
Q2 2020
Q2 2019
% change
 
H1 2020
H1 2019
% change
 
USD m
USD m
USD
cc
 
USD m
USD m
USD
cc
Net sales
2 159
2 438
-11
-9
 
4 687
4 764
-2
1
Operating income
321
282
14
25
 
276
555
-50
-40
  As % of net sales
14.9
11.6
     
5.9
11.6
   
Core operating income
475
501
-5
1
 
1 148
962
19
26
  As % of net sales
22.0
20.5
     
24.5
20.2
   

COVID-19 Impacts

First half results are more representative of performance as Q1 forward purchasing largely reversed in Q2. In Q2 there was significant disruption to practices limiting patient access to treatments, especially to our retail business. Despite this, H1 sales grew 1% (cc) and core operating income grew 26% (cc).  Spending was lower in both quarters as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities. We will closely monitor the impact of these trends on future quarters.

Second quarter
Net sales
Sandoz net sales were USD 2.2 billion (-11%, -9% cc) in the second quarter with volume decline of 9 percentage points (cc) and pricing was in line with prior year, benefiting from favorable revenue deduction adjustments. The sales decline was due to COVID-19 negative impacts, mainly the reversal of Q1 forward purchasing and lower retail demand, some contract discontinuations in the US and a higher prior year base that included several first to market launches. The decline was partly offset by global sales of Biopharmaceuticals growing 19% (cc), driven by double digit growth in Europe and the US.
Sales in Europe were USD 1.1 billion (-11%, -8% cc), impacted by COVID-19. Sales in the US were USD 508 million (-21%), impacted by the oral solids decline as well as US first-to-market launches in prior year. Sales in Asia / Africa / Australasia were USD 341 million (+2%, +4% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 180 million (-7%, +5% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 466 million (+16%, +19% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin). Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 1.6 billion (-17%, -14% cc), impacted by COVID-19. Total Anti-Infectives franchise sales were USD 251 million (-22%, -19% cc), including finished dosage forms sold under the Sandoz name (USD 134 million, -28%, -24% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 117 million, -13%, -12% cc).
Operating income
Operating income was USD 321 million (+14%, +25% cc), mainly driven by lower restructuring expenses, continued gross margin improvements and lower costs, partly offset by the lower sales. Operating income margin increased by 4.3 percentage points in constant currencies; currency had a negative impact of 1.0 percentage points, resulting in a net increase of 3.3 percentage points to 14.9% of net sales.
Core adjustments were USD 154 million, including USD 70 million of amortization. Prior year core adjustments were USD 219 million. The change in core adjustments compared to prior year was driven by lower net restructuring expenses from Sandoz Transformation.
Core operating income was USD 475 million (-5%, +1% cc) as lower spending linked to COVID-19, cost discipline and gross margin improvements were mostly offset by sales decline. Core operating income
 
 
____
14
 

margin improved by 2.2 percentage points in constant currencies, currency had a negative impact of 0.7 percentage points, resulting in a net increase of 1.5 percentage points to 22.0% of net sales. Core gross margin as a percentage of net sales increased by 2.0 percentage points (cc), driven by favorable product and geographic mix, ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 1.1 percentage points (cc). Core SG&A expenses decreased by 0.4 percentage points (cc). Core Other Income and Expense decreased by 0.9 percentage points (cc), mainly due to lower net legal settlement provisions.
First half
Net sales
Net sales were USD 4.7 billion (-2%, +1% cc) with volume growth of 3 percentage points (cc) partially offset by 2 percentage points (cc) of price erosion, benefiting from favorable revenue deduction adjustments. Excluding the US, net sales grew (+2%, +6% cc).
Sales in Europe were USD 2.6 billion (+2%, +5% cc). Sales in the US were USD 1.1 billion (-12%), due to the volume decline in oral solids. Sales in Asia / Africa / Australasia were USD 675 million (+4%, +5% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 376 million (+1%, +12% cc).
Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 916 million (+22%, +25% cc), driven by continued strong double digit growth in Europe and the US. Launch roll-outs in other geographies also contributed to growth.
Retail sales were USD 3.5 billion (-6%, -3% cc) as declines in the US were partly offset by growth in Europe. Total Anti-Infectives franchise sales were USD 582 million (-10%, -8% cc), including finished dosage forms sold under the Sandoz name (USD 356 million, -9%, -5% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 226 million, -13%, -11% cc), which were impacted by a planned contract discontinuation.
Operating income
Operating income was USD 276 million (-50%, -40% cc), impacted by USD 0.4 billion legal provisions and cumulative depreciation and amortization from the termination of the planned Aurobindo transaction. Operating income margin decreased by 4.7 percentage points in constant currencies; currency had a negative impact of 1.0 percentage points, resulting in a net decrease of 5.7 percentage points to 5.9% of net sales.
Core adjustments were USD 0.9 billion, including USD 0.2 billion of amortization and USD 0.4 billion legal settlements charges and provisions. Prior year core adjustments were USD 0.4 billion, which were impacted by net restructuring expenses from Sandoz Transformation.
Core operating income was USD 1.1 billion (+19%, +26% cc), driven by gross margin improvements, lower spending linked to COVID-19, cost discipline and sales growth. Core operating income margin was 24.5% of net sales, increasing 4.3 percentage points (4.9 percentage points cc). Core gross margin increased by 2.3 percentage points (cc), driven by favorable product and geographic mix along with ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 0.1 percentage points (cc). Core SG&A expenses decreased by 2.0 percentage points (cc). Core Other Income and Expense decreased by 0.7 percentage points (cc), mainly due to lower net legal settlement provisions.
 
 
____
15
 

GROUP CASH FLOW AND BALANCE SHEET

Cash flow
Second quarter
Net cash flows from operating activities from continuing operations amounted to USD 4.0 billion, compared to USD 3.1 billion in the prior year quarter. This increase was mainly driven by favorable working capital and lower taxes paid, partly offset by higher provision payments including legal settlements.
Net cash outflows from investing activities from continuing operations amounted to USD 0.3 billion, compared to net cash inflows of USD 0.2 billion in the prior year quarter.
The current year quarter cash outflows were mainly driven by USD 0.5 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets. These were partly offset by cash inflows of USD 0.2 billion mainly from the sale of financial and intangible assets.
In the prior year quarter, net cash inflows of USD 0.2 billion from investing activities from continuing operations were mainly related to USD 1.0 billion in proceeds from the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), intangible assets and financial assets. These were partly offset by cash outflows of USD 0.5 billion for the purchase of property, plant and equipment, intangible assets and financial assets. Cash outflows for acquisitions and divestments of business, net, amounted to USD 0.3 billion (acquisition of IFM Tre, Inc.).
Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 0.7 billion in the prior year quarter. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business. The prior year quarter mainly included the cash outflow of USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of the spin-off of the Alcon business.
Net cash flows used for financing activities from continuing operations amounted to USD 2.2 billion, compared to USD 2.7 billion in the prior year quarter.
The current year quarter cash outflows includes mainly USD 1.2 billion from the net decrease in current financial debts and the repayment of a US dollar bond of USD 1.0 billion at maturity.
In the prior year quarter, net cash outflows of USD 2.7 billion from financing activities from continuing operations mainly included the cash outflows for net treasury share transactions of USD 2.4 billion, the net repayment of financial debts of USD 0.8 billion, partly offset by other net financing cash inflows of USD 0.5 billion.
Net cash inflows from financing activities from discontinued operations in the prior year quarter amounted to USD 2.7 billion, which included mainly the cash inflows of USD 3.2 billion from Alcon borrowings, partly offset by USD 0.1 billion in payments for Alcon transaction costs.
Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.
First half
Net cash flows from operating activities from continuing operations amounted to USD 6.5 billion, compared to USD 5.4 billion in the prior year period. This increase was driven by higher net income adjusted for non-cash items and other adjustments, including divestment gains, partly offset by higher provision payments including legal settlements.
Net cash outflows from investing activities from continuing operations amounted to USD 10.5 billion, compared to net cash inflows of USD 2.0 billion in the prior year period.
 
 
____
16
 


The current year period cash outflows were mainly driven by the USD 9.9 billion used for the acquisitions and divestments of businesses, net (including the acquisition of The Medicines Company for USD 9.5 billion, net of cash acquired USD 0.1 billion, and the acquisition of Japanese business of Aspen Global Incorporated for USD 0.3 billion). Other investing activities cash outflows were USD 1.1 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets. These were partly offset by cash inflows of USD 0.5 billion mainly from the sale of financial assets (including the USD 0.2 billion proceeds from the sale of Alcon Inc. shares), of intangible assets and from the net proceeds from sales and purchases of marketable securities and commodities.
In the prior year period, net cash inflows of USD 2.0 billion from investing activities from continuing operations were mainly related to USD 2.3 billion from the net sale of marketable securities and commodities, and of USD 1.3 billion in proceeds from the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), intangible assets and financial assets. These were partly offset by cash outflows of USD 1.2 billion for the purchase of property, plant and equipment, intangible assets and financial assets. Cash outflows for acquisitions and divestments of business, net, amounted to USD 0.4 billion including the acquisition of IFM Tre, Inc. (USD 0.3 billion).
Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 1.1 billion in the prior year period. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business.
The prior year period includes mainly the cash outflow for the acquisition of PowerVision, Inc. of USD 0.3 billion and USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of Alcon spin-off, on April 9, 2019.
Net cash flows used in financing activities from continuing operations amounted to USD 1.1 billion, compared to USD 13.0 billion in the prior year period.
The current year period includes net cash inflows of USD 0.7 billion from net treasury share transactions and USD 5.4 billion from current and non-current financial debt; consisting of USD 4.9 billion from issuance of bonds denominated in US dollars (notional amount of USD 5.0 billion), USD 2.5 billion from the net increase in current financial debts and the repayment of two US dollar bonds totaling USD 2.0 billion at maturity. These net cash inflows were offset by cash outflows of USD 7.0 billion for the dividend payment and USD 0.3 billion for the net payments for lease liabilities and other financing cash flows.
In the prior year period, net cash outflows of USD 13.0 billion from financing activities from continuing operations mainly included the cash outflows of USD 6.6 billion for the dividend payment, the repayment of a US dollar bond of USD 3.0 billion and for the net treasury share transactions of USD 2.4 billion. The net repayments of current financial debts amounted to USD 0.9 billion.
Net cash inflows from financing activities from discontinued operations in the prior year period amounted to USD 3.3 billion, which included mainly the cash inflows of USD 3.5 billion from Alcon borrowings, partly offset by USD 0.2 billion payments for transaction costs.
Free cash flow from continuing operations amounted to USD 5.7 billion (+3%) compared to USD 5.5 billion in the prior year period. This increase was mainly driven by higher operating income adjusted for non-cash items and other adjustments, partly offset by lower divestment proceeds.

Balance sheet

In December 31, 2019, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reported as current assets and liabilities held for sale in the consolidated balance sheet. Novartis decided to retain the Sandoz US generic oral solids and dermatology businesses in March 2020, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. As such, these assets and liabilities are reclassified to their respective consolidated balance sheet lines as from March 31, 2020, the prior year consolidated balance sheet is not restated (see Notes 2 and 3).
 
 
____
17
 

Assets
Total non-current assets of USD 99.9 billion at June 30, 2020, increased by USD 11.0 billion compared to December 31, 2019. Intangible assets other than goodwill increased by USD 7.9 billion mainly due to the acquisitions of The Medicines Company and of the Japanese business of Aspen Global Incorporated, net additions and the reclassification of the intangible assets of the disposal group held for sale of USD 0.3 billion, partially offset by amortization and impairments. Goodwill increased by USD 2.6 billion and deferred tax assets by USD 0.7 billion mainly due to the acquisition of The Medicines Company. Property, plant and equipment decreased by USD 0.1 billion, as the increase due to net additions and the reclassification of the property, plant and equipment of the disposal group held for sale of USD 0.1 billion were more than offset by depreciation. Investments in associated companies and financial assets decreased by USD 0.1 billion in total, while other non-current assets increased by USD 0.1 billion mainly due to an increase in the prepaid benefit costs of USD 0.1 billion, mainly resulting from actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations and valuation impact on plan assets. Right-of-use assets were broadly in line with December 31, 2019.
Total current assets of USD 23.9 billion at June 30, 2020, decreased by USD 5.6 billion compared to December 31, 2019. This was mainly driven by a decrease in cash and cash equivalents of USD 5.2 billion. Inventories increased by USD 0.9 billion, partly due to the reclassification of the inventory of the disposal group held for sale. Trade receivables decreased by USD 0.7 billion to USD 7.6 billion. Income tax receivables, other current assets and marketable securities, commodities, time deposits, and derivative financial instruments remained broadly in line with December 31, 2019.

Liabilities
Total non-current liabilities of USD 40.5 billion increased by USD 5.9 billion compared to December 31, 2019. Long-term financial debts increased by USD 3.6 billion, mainly driven by the issuance of US dollar denominated bonds for a notional amount of USD 5.0 billion, partly offset by the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021. Deferred tax liabilities increased by USD 1.6 billion mainly due to the acquisition of The Medicines Company. Provisions and other non-current liabilities increased by USD 0.7 billion, principally due to an increase in pension liabilities of USD 0.6 billion, mainly resulting from actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations and valuation impact on plan assets. Lease liabilities were broadly in line compared to December 31, 2019.
Total current liabilities of USD 29.4 billion increased by USD 1.1 billion compared to December 31, 2019. Financial debts and derivative financial instruments increased by USD 1.8 billion, due to the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021 and higher short-term borrowings, partly offset by the repayment at maturity of two US dollar bonds, totaling USD 2.0 billion. Current income tax liabilities increased by USD 0.4 billion. This net increase was partially offset by a decrease of USD 0.6 billion in trade payables and a decrease of USD 0.5 billion in provisions and other current liabilities. Lease liabilities were broadly in line compared to December 31, 2019.

Group equity
The Group’s equity decreased by USD 1.7 billion to USD 53.9 billion at June 30, 2020 compared to December 31, 2019. This decrease was mainly due to the cash-dividend payment of USD 7.0 billion, net actuarial losses of USD 0.3 billion and purchase of treasury shares of USD 0.1 billion. This was partially offset by net income of USD 4.0 billion, the net effect of the exercise of options and employee transactions of USD 0.8 billion, equity-based compensation of USD 0.4 billion, favorable currency translation differences of USD 0.4 billion and the net favorable effect of fair value adjustments on financial instruments of USD 0.1 billion.
Net debt and debt/equity ratio
The Group’s liquidity amounted to USD 6.3 billion at June 30, 2020, compared to USD 11.4 billion at December 31, 2019. Total non-current and current financial debts, including derivatives, amounted to USD 32.8 billion at June 30, 2020, compared to USD 27.4 billion at December 31, 2019. The debt/equity
 
 
____
18
 


ratio increased to 0.61:1 at June 30, 2020, compared to 0.49:1 at December 31, 2019. The net debt increased to USD 26.5 billion at June 30, 2020, compared to USD 15.9 billion at December 31, 2019.
Group liquidity
We continuously track our liquidity positions and assets / liabilities profile. We have a strong balance sheet and related funding capabilities to meet our funding needs. The Group has not experienced liquidity or cash flow disruptions during the first half of 2020 due to COVID-19 pandemic, and maintains a cash and cash equivalents position of USD 5.9 billion as per June 30, 2020. We believe that our strong credit rating allows for continued access to short term funding in the US commercial paper market. The Group further has a committed credit facility of USD 6.0 billion as a backstop for the US commercial paper program, which was undrawn as of June 30, 2020, providing a further source of liquidity if needed. Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.
 
 
____
19
 

Innovation Review
 
Benefiting from our continued focus on innovation, Novartis has one of the industry’s most innovative and inventive pipelines with more than 160 projects in clinical development.

Selected Innovative Medicines approvals: US, EU and Japan in Q2
Product
Active ingredient/
Descriptor
Indication
Region
Atectura Breezhaler
(QMF149)
indacaterol/mometasone fuorate
Asthma
EU – May
JP – June
Cosentyx
secukinumab
Non-radiographic axial spondyloarthritis
EU – April
US – June
Enerzair Breezhaler (QVM149)
indacaterol acetate + mometasone fuorate + glycopyrronium bromide
Asthma
EU – July
JP – June
Entresto
valsartan/sacubitril
Chronic heart failure
JP - June
Mayzent
siponimod
SPMS
JP - June
Tabrecta
capmatinib
NSCLC (cMET amp and mut)1
US – May
JP – June
Zolgensma
 
Spinal Muscular Atrophy
(IV formulation)
EU – May conditional approval
1 indication is approved under accelerated approval based on overall response rate and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trial(s).

Selected Innovative Medicines projects awaiting regulatory decisions
   
Completed submissions
 
Product
Indication
US
EU
Japan
News update
BYL719
(Piqray in US, alpelisib)
 
PIK3CA mutant HR+, HER2 (-) postmenopausal adv BC 2nd line (+fulv)
Approved
Q4 2018
 
- CHMP positive opinion – May 2020
Cosentyx
Non-radiographic axial spondyloarthritis
Approved
Approved
Q4 2019
- Phase III PREVENT data show significant and sustained improvement in signs and symptoms of non-radiographic axial spondyloarthritis (nr-axSpA) up to week 52
Entresto
Chronic heart failure with preserved ejection fraction
Q2 2020
   
- Filing accepted by FDA in June 2020
KJX839
(inclisiran)
Hyperlipidemia
Q4 2019
Q1 2020
   
OMB157
(ofatumumab)
Relapsing Multiple Sclerosis
Q4 2019
Q1 2020
 
- FDA extend BLA review – regulatory action date September 2020
SEG101
(Adakveo in US)
Sickle cell disease
Approved
Q2 2019
   
Xolair
Nasal polyps
Q3 2019
Q4 2019
 
- CHMP positive opinion received – June 2020

 
 
____
20
 

Selected Innovative Medicines pipeline projects

Project/
Compound
Potential indication/
Disease area
First planned
submissions
Current
Phase
News update
 
ABL001
Chronic myeloid leukemia 3rd  line
2021
III
 
ACZ885
(canakinumab)
Adjuvant NSCLC
2023
III
- Enrollment ongoing
1st line NSCLC
2021
III
- Completed enrollment in Jan 2020
2nd line NSCLC
2021
III
- Enrollment complete
Aimovig
Pediatric migraine
≥2024
III
 
AVXS-101 IT
Spinal Muscular Atrophy
(IT formulation)
2021
I / II
- Continued dialogue with FDA on partial clinical hold
- Plan to approach FDA for pre-BLA meeting, with a BLA submission in 2021
AVXS-201
Rett Syndrome
2023
I
 
BYL719
(alpelisib)
PROS (PIK3CA-related overgrowth spectrum)
2020
II
- Potential US filing in 2020 based on RWE data
HER2+ adv breast cancer
2023
III
 
Triple negative breast cancer
2023
III
- Trial enrolled first patient in June 2020
 
Head and neck squamous cell carcinoma
≥2024
III
 
 
Ovarian Cancer
2023
III
 
CEE321
Atopic dermatitis
≥2024
I
 
CFZ533
(iscalimab)
Renal Tx
2023
II
 
Liver Tx
≥2024
II
 
Sjögren’s syndrome
≥2024
II
 
Coartem
Malaria uncomplicated, <5kg patients
2023
III
 
Cosentyx
Ankylosing spondylitis head-to-head vs. adalimumab
2022
III
 
 
Hidradenitis suppurativa
2022
III
 
 
Axial spondyloarthritis IV regimen
2022
III
 
 
Giant cell arteritis
≥2024
II
 
 
Lichen Planus
≥2024
II
 
 
Lupus Nephritis
≥2024
II
 
CPK850
Retinitis pigmentosa
≥2024
II
 
CSJ117
Asthma
≥2024
II
 
ECF843
Dry eye
2023
II
 
Entresto
Post-acute myocardial infarction
2021
III
 
INC280
(capmatinib)
Solid Tumors
≥2024
II
 
Jakavi
Acute graft-versus-host disease (GvHD)
2021
III
- Phase III results published in NEJM, confirming significant improvement in overall response
Chronic graft-versus-host disease (GvHD)
2021
III
- Readout is on track for 2020
KAE609
(cipargamin)
Malaria uncomplicated
≥2024
II
 
Malaria severe
≥2024
II
 
KAF156
(ganaplacide)
Malaria uncomplicated
≥2024
II
 
 
 
____
21
 

Project/
Compound
Potential indication/
Disease area
First planned
submissions
Current
Phase
News update
Kisqali
+ endocrine therapy
HR+/HER2- early BC (adjuvant)
2022
III
- Potential for registration as early as 2022 assuming positive, pre-planned interim analysis
KJX839
(inclisiran)
ORION-4: Secondary prevention of cardiovascular events in patients with elevated levels of LDLC
≥2024
III
 
 
 
- Acquired from The Medicines Company in Jan 2020
 
 
ORION-5: Evaluate inclisiran in subjects with a rare genetic condition: homozygous familial hypercholesterolemia (n=56)
 
III
- July 2020: Preliminary analysis completed. Results inconclusive due to confounding factors. Trial continues with planned protocol amendment. Trial continues. Full results to be available in H2 2021
- No impact on ongoing submissions
Kymriah (tisagenlecleucel)
r/r Follicular lymphoma
2021
II
 
r/r DLBCL in 1st relapse
2021
III
 
+ pembrolizumab
r/r DLBCL
≥2024
II
 
LAM320
Multi-drug resistant tuberculosis
2021
III
- WHO qualification only / US registration will not be pursued
LJC242
(tropifexor + cenicriviroc)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
 
LJN452
(tropifexor)
Non-alcoholic steatohepatitis (NASH)
≥2024
II
- FDA Fast Track designation
LMI070
Spinal Muscular Atrophy
≥2024
II
- FDA Orphan designation, EMA Orphan status obtained
- Dose ranging study ongoing
LNA043
Osteoarthritis
≥2024
II
 
LNP023
Paroxysmal nocturnal hemoglobinuria
2023
II
 
 
IgA nephropathy
2023
II
 
Membranous nephropathy
≥2024
II
 
 
C3 glomerulopathy
2023
II
- US orphan designation received
 
Atypical haemolytic uraemic syndrome
2023
II
 
LOU064
(remibrutinib)
Chronic Spontaneous Urticaria
2023
II
- Readout expected in 2021
 
Sjögren’s syndrome
≥2024
II
 
Lutathera
GEP-NET 1L G3
2023
III  
177Lu-PSMA-617
Metastatic castration-resistant prostate cancer
2021
III
- Event driven trial. H1 2021 readout
177Lu-PSMA-R2
Prostate cancer
≥2024
I
 
177Lu-NeoB
Multiple Solid Tumor
≥2024
I
 
LXE408
Visceral leishmaniosis
≥2024
II
 
MBG453
Myelodysplastic syndrome
2021
III
- Study initiated in June 2020
 
Unfit AML
≥2024
II
- Study expected to start in 2020
PDR001 + Tafinlar + Mekinist
Metastatic BRAF V600+ melanoma
2020
III
- Expected submission in H2 2020
PDR001 Combo
Malignant melanoma
≥2024
II
- Enrollment ongoing
QBW251
COPD
≥2024
II
- Phase IIb recruitment ongoing
 
 
____
22
 

Project/
Compound
Potential indication/
Disease area
First planned
submissions
Current
Phase
News update
QGE031
(ligelizumab)
Chronic Spontaneous Urticaria / Chronic
Idiopathic Urticaria
2021
III
Enrollment on track to complete in 2020
RTH258 (brolucizumab)
Diabetic macular edema
2021
III
- Expected readout in H2 2020
Retinal vein occlusion
2023
III
 
 
Diabetic retinopathy
2023
III
 
SAF312
Chronic ocular surface pain
≥2024
II
 
TQJ230
Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)
≥2024
III
- Trial initiated, FPFV in Q4 2019
UNR844
Presbyopia
≥2024
II
 
VAY736
(ianalumab)
Auto-immune hepatitis
≥2024
II
 
Primary Sjögren’s syndrome
≥2024
II
- FDA Fast Track designation
 
VPM087
1st line colorectal cancer / 1st line renal cell carcinoma
≥2024
I
 
Xolair
Food Allergy
2022
III
 
ZPL389
(adriforant)
Atopic dermatitis
≥2024
II
- Project discontinued

Selected Sandoz approvals and pipeline projects
Project/ Compound
Potential indication/
Disease area
News update
GP2411 (denosumab)
Osteoporosis, skeletal-related in bone met. pts (same as originator)
- In Phase III
- First patient enrolled July 2019
Insulin glargine, lispro, aspart
Diabetes
- Collaboration with Gan & Lee
natalizumab
Multiple sclerosis and Crohn’s disease
- Collaboration Polpharma Biologics
trastuzumab
HER2-positive cancer tumors
- Collaboration EirGenix
 
 
____
23
 

Condensed interim consolidated financial statements

Consolidated income statements
Second quarter (unaudited)
(USD millions unless indicated otherwise)
Note
Q2 2020
Q2 2019
Net sales to third parties from continuing operations
9
11 347
11 764
Other revenues
9
275
260
Cost of goods sold
-3 429
-3 406
Gross profit from continuing operations
8 193
8 618
Selling, general and administration
-3 368
-3 585
Research and development
-2 441
-2 051
Other income
432
989
Other expense
-464
-1 308
Operating income from continuing operations
2 352
2 663
Income from associated companies
183
176
Interest expense
-220
-205
Other financial income and expense
-27
0
Income before taxes from continuing operations
2 288
2 634
Taxes
-421
-525
Net income from continuing operations
1 867
2 109
Gain on distribution of Alcon Inc. to Novartis AG shareholders
3, 10
4 691
Net income from discontinued operations
4 691
Net income
1 867
6 800
Attributable to:
Shareholders of Novartis AG
1 867
6 799
Non-controlling interests
0
1
Weighted average number of shares outstanding – Basic (million)
2 289
2 310
Basic earnings per share from continuing operations (USD) 1
0.82
0.91
Basic earnings per share from discontinued operations (USD) 1
2.03
Total basic earnings per share (USD) 1
0.82
2.94
Weighted average number of shares outstanding – Diluted (million)
2 304
2 333
Diluted earnings per share from continuing operations (USD) 1
0.81
0.90
Diluted earnings per share from discontinued operations (USD) 1
2.01
Total diluted earnings per share (USD) 1
0.81
2.91
 1  Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
24

Consolidated income statements
First half (unaudited)
(USD millions unless indicated otherwise)
Note
H1 2020
H1 2019
Net sales to third parties from continuing operations
9
23 630
22 870
Sales to discontinued segment
53
Net sales from continuing operations
23 630
22 923
Other revenues
9
700
556
Cost of goods sold
-7 151
-6 657
Gross profit from continuing operations
17 179
16 822
Selling, general and administration
-6 854
-6 915
Research and development
-4 501
-4 350
Other income
693
1 192
Other expense
-1 421
-1 844
Operating income from continuing operations
5 096
4 905
Income from associated companies
306
256
Interest expense
-459
-431
Other financial income and expense
-34
44
Income before taxes from continuing operations
4 909
4 774
Taxes
-869
-797
Net income from continuing operations
4 040
3 977
Net loss from discontinued operations before gain on distribution of Alcon Inc.
to Novartis AG shareholders

10


-101
Gain on distribution of Alcon Inc. to Novartis AG shareholders
3, 10
4 691
Net income from discontinued operations
4 590
Net income
4 040
8 567
Attributable to:
Shareholders of Novartis AG
4 043
8 565
Non-controlling interests
-3
2
Weighted average number of shares outstanding – Basic (million)
2 281
2 312
Basic earnings per share from continuing operations (USD) 1
1.77
1.72
Basic earnings per share from discontinued operations (USD) 1
1.98
Total basic earnings per share (USD) 1
1.77
3.70
Weighted average number of shares outstanding – Diluted (million)
2 299
2 336
Diluted earnings per share from continuing operations (USD) 1
1.76
1.70
Diluted earnings per share from discontinued operations (USD) 1
1.96
Total diluted earnings per share (USD) 1
1.76
3.66
 1  Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.  
25

Consolidated statements of comprehensive income
Second quarter (unaudited)
(USD millions)
Q2 2020
Q2 2019
Net income
1 867
6 800
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
1
Total fair value adjustments on financial instruments, net of taxes
1
Net investment hedge
-38
-27
Currency translation effects 1
380
525
Total of items to eventually recycle
343
498
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial gains/(losses) from defined benefit plans, net of taxes
319
-387
Fair value adjustments on equity securities, net of taxes
173
-21
Total of items never to be recycled
492
-408
Total comprehensive income
2 702
6 890
Attributable to:
Shareholders of Novartis AG
2 703
6 888
Continuing operations
2 703
2 298
Discontinued operations
4 590
Non-controlling interests
-1
2
  
 1  In Q2 2019, cumulative currency translation gains of USD 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10). 
First half (unaudited)
(USD millions)
H1 2020
H1 2019
Net income
4 040
8 567
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
1
Fair value adjustments on deferred cash flow hedges, net of taxes
1
Total fair value adjustments on financial instruments, net of taxes
2
Novartis share of other comprehensive income recognized by associated companies, net of taxes
-12
-54
Net investment hedge
-1
12
Currency translation effects 1
382
189
Total of items to eventually recycle
369
149
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial losses from defined benefit plans, net of taxes 2
-293
-890
Fair value adjustments on equity securities, net of taxes
99
74
Total of items never to be recycled
-194
-816
Total comprehensive income
4 215
7 900
Attributable to:
Shareholders of Novartis AG
4 219
7 898
Continuing operations
4 219
3 321
Discontinued operations
4 577
Non-controlling interests
-4
2
 1  In H1 2019, cumulative currency translation gains of USD 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10).
 2  Included in H1 2019 is a USD -358 million impact related to the revaluation of deferred tax assets on Swiss pension plans that were previously recognized through other comprehensive income. This revaluation resulted from the Swiss canton Basel-Stadt tax reform, enacted in February 2019.
26

Consolidated balance sheets

(USD millions)


Note
Jun 30,
2020
(unaudited)
Dec 31,
2019
(audited)
Assets
Non-current assets
Property, plant and equipment
9
11 955
12 069
Right-of-use assets
1 640
1 677
Goodwill
9
29 100
26 524
Intangible assets other than goodwill
9
36 669
28 787
Investments in associated companies
8 575
8 644
Deferred tax assets
8 601
7 909
Financial assets
2 475
2 518
Other non-current assets
866
738
Total non-current assets
99 881
88 866
Current assets
Inventories
6 904
5 982
Trade receivables
7 644
8 301
Income tax receivables
308
254
Marketable securities, commodities, time deposits and derivative financial instruments
376
334
Cash and cash equivalents
5 917
11 112
Other current assets
2 733
2 680
Total current assets without disposal group
23 882
28 663
Assets of disposal group held for sale
3
841
Total current assets
23 882
29 504
Total assets
123 763
118 370
Equity and liabilities
Equity
Share capital
913
936
Treasury shares
-37
-80
Reserves
52 936
54 618
Issued share capital and reserves attributable to Novartis AG shareholders
53 812
55 474
Non-controlling interests
73
77
Total equity
53 885
55 551
Liabilities
Non-current liabilities
Financial debts
23 955
20 353
Lease liabilities
1 698
1 703
Deferred tax liabilities
7 499
5 867
Provisions and other non-current liabilities
7 344
6 632
Total non-current liabilities
40 496
34 555
Current liabilities
Trade payables
4 820
5 424
Financial debts and derivative financial instruments
8 875
7 031
Lease liabilities
258
246
Current income tax liabilities
2 571
2 194
Provisions and other current liabilities
12 858
13 338
Total current liabilities without disposal group
29 382
28 233
Liabilities of disposal group held for sale
3
31
Total current liabilities
29 382
28 264
Total liabilities
69 878
62 819
Total equity and liabilities
123 763
118 370
27

Consolidated statements of changes in equity
Second quarter (unaudited)

(USD millions)




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at April 1, 2020
936
-68
55 356
-5 321
50 903
74
50 977
Net income
1 867
1 867
0
1 867
Other comprehensive income
836
836
-1
835
Total comprehensive income
1 867
836
2 703
-1
2 702
Purchase of treasury shares
0
-9
-9
-9
Reduction of share capital
-23
31
-8
Equity-based compensation
0
203
203
203
Shares delivered to Alcon employees
as a result of the Alcon spin-off


0

8


8


8
Fair value adjustments on financial assets sold
74
-74
Other movements
4
4
4
Total of other equity movements
-23
31
272
-74
206
206
Total equity at June 30, 2020
913
-37
57 495
-4 559
53 812
73
53 885

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at April 1, 2019
944
-63
51 518
-5 170
47 229
78
47 307
Net income
6 799
6 799
1
6 800
Other comprehensive income
89
89
1
90
Total comprehensive income
6 799
89
6 888
2
6 890
Dividend in kind
2, 3
2 927
2 927
2 927
Purchase of treasury shares
-16
-2 754
-2 770
-2 770
Reduction of share capital
-8
12
-4
Equity-based compensation
175
175
175
Shares delivered to Alcon employees
as a result of the Alcon spin-off




32


32


32
Taxes on treasury share transactions 1
-185
-185
-185
Increase of treasury share repurchase obligation
under a share buyback trading plan




-2 573


-2 573


-2 573
Transaction costs, net of taxes 2
-301
-301
-301
Fair value adjustments on financial assets sold
3
-3
Fair value adjustments related to divestments
4
-4
Impact of change in ownership of
consolidated entities




-3


-3

-2

-5
Other movements
7
7
7
Total of other equity movements
-8
-4
-2 672
-7
-2 691
-2
-2 693
Total equity at June 30, 2019
936
-67
55 645
-5 088
51 426
78
51 504
 1  Included in Q2 2019 is a USD 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings. This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
 2  Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.
28

Consolidated statements of changes in equity
First half 2020 (unaudited)

(USD millions)




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at January 1, 2020
936
-80
59 275
-4 657
55 474
77
55 551
Net income
4 043
4 043
-3
4 040
Other comprehensive income
-12
188
176
-1
175
Total comprehensive income
4 031
188
4 219
-4
4 215
Dividends
-6 987
-6 987
-6 987
Purchase of treasury shares
-1
-149
-150
-150
Reduction of share capital
-23
31
-8
Exercise of options and employee transactions
8
815
823
823
Equity-based compensation
5
360
365
365
Shares delivered to Alcon employees
as a result of the Alcon spin-off


0

29


29


29
Taxes on treasury share transactions
30
30
30
Fair value adjustments on financial assets sold
90
-90
Other movements
9
9
9
Total of other equity movements
-23
43
-5 811
-90
-5 881
-5 881
Total equity at June 30, 2020
913
-37
57 495
-4 559
53 812
73
53 885
29

Consolidated statements of changes in equity
First half 2019 (unaudited)

(USD millions)





Note




Share
capital




Treasury
shares




Retained
earnings




Total value
adjustments
Issued share
capital and
reserves
attributable
to Novartis
shareholders



Non-
controlling
interests




Total
equity
Total equity at January 1, 2019, as previously reported
944
-69
82 191
-4 452
78 614
78
78 692
Impact of change in accounting policies
4
3
3
3
Restated equity at January 1, 2019
944
-69
82 194
-4 452
78 617
78
78 695
Net income
8 565
8 565
2
8 567
Other comprehensive income
-54
-613
-667
-667
Total comprehensive income
8 511
-613
7 898
2
7 900
Dividends
-6 645
-6 645
-6 645
Dividend in kind
2, 3
-23 434
-23 434
-23 434
Purchase of treasury shares
-17
-2 955
-2 972
-2 972
Reduction of share capital
-8
12
-4
Exercise of options and employee transactions
3
197
200
200
Equity-based compensation
4
443
447
447
Shares delivered to Alcon employees
as a result of the Alcon spin-off




32


32


32
Taxes on treasury share transactions
4
-185
-185
-185
Increase of treasury share repurchase obligation
under a share buyback trading plan




-2 289


-2 289


-2 289
Transaction costs, net of taxes
4
-253
-253
-253
Fair value adjustments on financial assets sold
19
-19
Fair value adjustments related to divestments
4
-4
Impact of change in ownership of
consolidated entities




-3


-3

-2

-5
Other movements
13
13
13
Total of other equity movements
-8
2
-35 060
-23
-35 089
-2
-35 091
Total equity at June 30, 2019
936
-67
55 645
-5 088
51 426
78
51 504
 
30

Consolidated statements of cash flows
Second quarter (unaudited)
(USD millions)
Note
Q2 2020
Q2 2019
Net income from continuing operations
1 867
2 109
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments
6.1
2 345
2 085
Dividends received from associated companies and others
2
3
Interest received
5
55
Interest paid
-227
-239
Other financial receipts
52
10
Other financial payments
-10
28
Taxes paid
6.2
-303
-560
Net cash flows from operating activities from continuing operations before working capital
and provision changes


3 731

3 491
Payments out of provisions and other net cash movements in non-current liabilities
-420
-323
Change in net current assets and other operating cash flow items
650
-57
Net cash flows from operating activities from continuing operations
3 961
3 111
Total net cash flows from operating activities
3 961
3 111
Purchases of property, plant and equipment
-238
-279
Proceeds from sale of property, plant and equipment
1
648
Purchases of intangible assets
-214
-161
Proceeds from sale of intangible assets
49
210
Purchases of financial assets
-38
-45
Proceeds from sale of financial assets
117
142
Purchases of other non-current assets
-7
-14
Acquisitions and divestments of interests in associated companies, net
-2
-1
Acquisitions and divestments of businesses, net
6.3
0
-286
Purchases of marketable securities and commodities
-74
-75
Proceeds from sale of marketable securities and commodities
72
69
Net cash flows used in/from investing activities from continuing operations
-334
208
Net cash flows used in investing activities from discontinued operations
10
-91
-682
Total net cash flows used in investing activities
-425
-474
Acquisitions of treasury shares
-9
-2 368
Proceeds from exercised options and other treasury share transactions
30
Repayments of non-current financial debts
-1 002
-7
Change in current financial debts
-1 169
-793
Payment of lease liabilities, net
-74
-69
Impact of change in ownership of consolidated entities
-5
Other financing cash flows, net
52
532
Net cash flows used in financing activities from continuing operations
-2 172
-2 710
Net cash flows used in/from financing activities from discontinued operations
10
-13
2 682
Total net cash flows used in financing activities
-2 185
-28
Net change in cash and cash equivalents before effect of exchange rate changes
1 351
2 609
Cash and cash equivalents of discontinued operations at March 31, 2019
6.4
499
Effect of exchange rate changes on cash and cash equivalents
38
76
Total net change in cash and cash equivalents
1 389
3 184
Cash and cash equivalents at April 1
4 528
6 807
Cash and cash equivalents at June 30
5 917
9 991
31

Consolidated statements of cash flows
First half (unaudited)
(USD millions)
Note
H1 2020
H1 2019
Net income from continuing operations
4 040
3 977
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments
6.1
5 202
4 101
Dividends received from associated companies and others
489
463
Interest received
37
140
Interest paid
-321
-406
Other financial receipts
261
10
Other financial payments
-19
-16
Taxes paid
6.2
-899
-960
Net cash flows from operating activities from continuing operations before working capital
and provision changes


8 790

7 309
Payments out of provisions and other net cash movements in non-current liabilities
-824
-516
Change in net current assets and other operating cash flow items
-1 477
-1 348
Net cash flows from operating activities from continuing operations
6 489
5 445
Net cash flows from operating activities from discontinued operations
78
Total net cash flows from operating activities
6 489
5 523
Purchases of property, plant and equipment
-475
-561
Proceeds from sale of property, plant and equipment
4
812
Purchases of intangible assets
-460
-498
Proceeds from sale of intangible assets
105
281
Purchases of financial assets
-90
-154
Proceeds from sale of financial assets
359
177
Purchases of other non-current assets
-48
-24
Proceeds from sale of other non-current assets
0
3
Acquisitions and divestments of interests in associated companies, net
-4
-3
Acquisitions and divestments of businesses, net
6.3
-9 901
-382
Purchases of marketable securities and commodities
-345
-120
Proceeds from sale of marketable securities and commodities
394
2 428
Net cash flows used in/from investing activities from continuing operations
-10 461
1 959
Net cash flows used in investing activities from discontinued operations
10
-105
-1 105
Total net cash flows used in/from investing activities
-10 566
854
Dividends paid to shareholders of Novartis AG
-6 987
-6 645
Acquisitions of treasury shares
-150
-2 590
Proceeds from exercised options and other treasury share transactions
846
200
Increase in non-current financial debts
4 945
Repayments of non-current financial debts
-2 002
-3 008
Change in current financial debts
2 486
-942
Payment of lease liabilities, net
-142
-91
Impact of change in ownership of consolidated entities
-5
Other financing cash flows, net
-142
71
Net cash flows used in financing activities from continuing operations
-1 146
-13 010
Net cash flows used in/from financing activities from discontinued operations
10
-26
3 299
Total net cash flows used in financing activities
-1 172
-9 711
Net change in cash and cash equivalents before effect of exchange rate changes
-5 249
-3 334
Effect of exchange rate changes on cash and cash equivalents
54
54
Total net change in cash and cash equivalents
-5 195
-3 280
Cash and cash equivalents at January 1
11 112
13 271
Cash and cash equivalents at June 30
5 917
9 991
32

Notes to the Condensed Interim Consolidated Financial Statements for the three-month and six-month period ended June 30, 2020 (unaudited)

1. Basis of preparation
These Condensed Interim Consolidated Financial Statements for the three-month and six-month period ended June 30, 2020, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2019 Annual Report published on January 29, 2020.
2. Selected critical accounting policies
The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2019 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The preparation of financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, which affect the reported amounts of assets and liabilities, including any contingent amounts, the distribution liability recognized in connection with the distribution of Alcon Inc. to Novartis AG shareholders, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.
As disclosed in the 2019 Annual Report, goodwill, and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s results of operations and financial condition.
Non-current assets held for sale or held for distribution to owners
Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction or distribution to owners and a sale or distribution to owners is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated or amortized. The prior year consolidated balance sheet is not restated.
If in a subsequent period, the criteria for classification as held for sale are no longer met, the recoverable amount of assets and liabilities are reclassified out of assets held for sale into the respective balance sheet lines, prior year consolidated balance sheet is not restated. The cumulative amount of depreciation and amortization not recorded since the date of their classification to assets held for sale, and any required adjustments to the recoverable amounts of assets are recognized in the consolidated income statement.
Distribution of Alcon Inc. to Novartis AG shareholders
During the first quarter of 2019, at the Annual General Meeting (AGM) of Novartis AG shareholders, held on February 28, 2019, the Novartis AG shareholders approved a special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.
The February 28, 2019, shareholder approval for the spin-off required the Alcon Division and selected portions of corporate activities attributable to Alcon’s business (the “Alcon business”) to be reported as discontinued operations.
The shareholder approval to spin off the Alcon business also required the recognition of a distribution liability at the fair value of the Alcon business. The Group elected to measure the distribution liability at the fair value of the Alcon business net assets taken as a whole. The distribution liability was recognized through a reduction in retained earnings. It was required to be adjusted at each balance sheet date for changes in its estimated
33

fair value, up to the date of the distribution to shareholders through retained earnings. Any resulting impairment of the business assets to be distributed would have been recognized in the consolidated income statements in “Other expense” of discontinued operations, at the date of initial recognition of the distribution liability or at subsequent dates resulting from changes of the distribution liability valuation. At the April 8, 2019 distribution settlement date, the resulting gain, which was measured as the excess amount of the distribution liability over the then-carrying value of the net assets of the business distributed, was recognized on the line “Gain on distribution of Alcon Inc. to Novartis AG shareholders” in the income statement of discontinued operations.
The recognition of the distribution liability required the use of valuation techniques for purposes of impairment testing of the Alcon business’ assets to be distributed and for the measurement of the fair value of the distribution liability. These valuations required the use of management assumptions and estimates related to the Alcon business’ future cash flows, market multiples to estimate day one market value, and control premiums to apply in estimating the Alcon business fair value. These fair value measurements were classified as “Level 3” in the fair value hierarchy. The section “—Impairment of goodwill and intangible assets” in Note 1 to the Consolidated Financial Statements of the 2019 Annual Report provides additional information on key assumptions that are highly sensitive in the estimation of fair values using valuation techniques.
Transaction costs that were directly attributable to the distribution (spin-off) of Alcon to the Novartis shareholders, and that would otherwise have been avoided, were recorded as a deduction from equity.
For additional disclosures, refer to Notes 3 and 10.
New IFRS standard effective as of January 1, 2020
IFRS 3 Business Combination amendments
The IASB issued amendments to IFRS 3 Business Combinations that revised the definition of a business, which assist entities with the evaluation of when an asset or group of assets acquired or disposed of should be considered a business. This amended standard has been applied to transactions entered into on or after January 1, 2020. The amended standard allows an entity to apply an optional concentration test, on a transaction-by-transaction basis, to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this optional concentration test is met, the entity may choose to consider the transaction an acquisition of an asset or set of assets. The adoption of this amended standard on January 1, 2020 did not have a significant impact on our consolidated financial statements and is not expected to have a significant impact in future periods. However, this will depend on the facts and circumstances of future transactions and if the Group decides to apply the optional concentration test in the assessment of whether an acquired set of activities and assets is or is not a business.
There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on the Group.
3. Significant transactions
Significant transactions in 2020
Innovative Medicines – acquisition of The Medicines Company
On November 23, 2019, Novartis entered into an agreement and plan of merger (the Merger Agreement) with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey USA. Pursuant to the Merger Agreement, on December 5, 2019, Novartis, through a subsidiary, commenced a tender offer to acquire all outstanding shares of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.6 billion in cash on a fully diluted basis, including the equivalent share value related to The Medicines Company’s convertible notes, in accordance with their terms. The tender offer expired on January 3, 2020, and on January 6, 2020, the acquiring subsidiary merged with and into The Medicines Company, resulting in The Medicines Company becoming an indirect wholly owned subsidiary of Novartis. Novartis financed the transaction through available cash, and short- and long-term borrowings.
The Medicines Company is focused on the development of inclisiran, a potentially first-in-class, twice yearly therapy that allows administration during patients’ routine visits to their healthcare professionals and will potentially contribute to improved patient adherence and sustained lower LDL-C levels.
The fair value of the total purchase consideration was USD 9.6 billion. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 7.1 billion, consisting of USD 8.5 billion intangible assets, USD 1.4 billion net deferred tax liabilities and goodwill of approximately USD 2.5 billion.
Results of operations since the date of acquisition were not material.
Sandoz – acquisition of the Japanese business of Aspen Global Incorporated
On November 11, 2019, Sandoz entered into an agreement for the acquisition of the Japanese business of
34

Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited. Under the agreement, Sandoz acquired the shares in Aspen Japan K.K. and associated assets held by AGI. The transaction closed on January 31, 2020.
Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. The acquisition will enable Sandoz to expand its presence in the third-largest worldwide generics marketplace.
The purchase price consist of EUR 300 million (USD 331 million) upfront payment, less customary purchase price adjustment of EUR 27 million (USD 30 million), plus potential milestone payments of up to EUR 120 million (USD 132 million), which AGI is eligible to receive upon the achievement of specified milestones.
The fair value of the total purchase consideration was EUR 345 million (USD 381 million). The amount consisted of an initial cash payment of EUR 273 million (USD 301 million) and the fair value of contingent consideration of EUR 72 million (USD 80 million), which AGI is eligible to receive upon the achievement of specified milestones. The purchase price allocation resulted in net identifiable assets of approximately USD 309 million, consisting of USD 269 million intangible assets, USD 26 million other net assets, USD 14 million net deferred tax assets and goodwill of approximately USD 72 million. Results of operations since the date of acquisition were not material.
Sandoz – retention of US dermatology business and generic US oral solids portfolio, previously planned to be divested
On September 6, 2018, Novartis announced that it entered into a stock and asset purchase agreement (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for the sale of selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, for USD 0.8 billion in cash and potential earnouts. The closing was conditional on obtaining regulatory approval.
In March 2020, Novartis took the decision to retain the Sandoz US generic oral solids and dermatology businesses and entered into a mutual agreement with Aurobindo to terminate the transaction. The decision was taken as regulatory approval from the US Federal Trade Commission was not obtained within the SAPA agreed timelines.
The cumulative amount of the depreciation on property, plant and equipment and amortization on intangible assets, not recorded in the consolidated income statement since the date of classification as held for sale, amounting to USD 38 million and USD 102 million, respectively, was recognized in the consolidated income statement in the first quarter of 2020. In addition, an impairment of currently marketed products of USD 42 million was recognized in the first quarter of 2020 consolidated income statement.
As at March 31, 2020, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets and liabilities of disposal group held for sale. The prior year balance sheet is not required to be restated.
In the Group’s consolidated balance sheet at December 31, 2019, the assets and liabilities classified as disposal group assets and liabilities held for sale consisted of the following:

(USD millions)

Dec 31,
2019
Assets of disposal group classified as held for sale
Property, plant and equipment
169
Intangible assets other than goodwill
475
Deferred tax assets
11
Other non-current assets
2
Inventories
181
Other current assets
3
Total
841
Liabilities of disposal group classified as held for sale
Deferred tax liabilities
2
Provisions and other non-current liabilities
4
Provisions and other current liabilities
25
Total
31
There are no cumulative income or expenses included in other comprehensive income relating to the disposal group.
Significant transactions in 2019
Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders
On June 29, 2018, Novartis announced its intention to seek shareholder approval for the spin-off of the Alcon business into a separately traded standalone company, following the complete structural separation of the Alcon business into a standalone company (the Alcon business or Alcon Inc.).
The Novartis AG shareholders approved the spin-off of the Alcon business at the 2019 Annual General Meeting held on February 28, 2019, subject to completion of certain conditions precedent to the distribution. Upon shareholder approval, the Alcon business was reported as discontinued operations, and the fair value of the Alcon business exceeded the carrying value of its net assets.
The conditions precedent to the spin-off were met and on April 8, 2019 the spin-off of the Alcon business was effected by way of a distribution of a dividend in kind
35

of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders (the Distribution), which amounted to USD 23.4 billion and is recognized as a reduction to retained earnings. Through the Distribution, each Novartis AG shareholder received one Alcon Inc. share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business. As of April 9, 2019, the shares of Alcon Inc. are listed on the SIX Swiss Exchange (SIX) and on the New York Stock Exchange (NYSE) under the symbol “ALC.”
The dividend in kind distribution liability to effect the spin-off of the Alcon business (the distribution liability) amounted to USD 26.4 billion at March 31, 2019, unchanged from its initial recognition on February 28, 2019, and was in excess of the carrying value of the Alcon business net assets as of February 28, 2019, and as of March 31, 2019. The net assets of the Alcon business amounted to USD 23.1 billion as at March 31, 2019.
On March 6, 2019, Alcon entered into financing arrangements with a syndicate of banks under which it borrowed on April 2, 2019, a total amount of USD 3.2 billion. These borrowings consisted of approximately USD 2.8 billion and the equivalent of USD 0.4 billion in EUR in bridge and other term loans under such Alcon facilities agreement. In addition, approximately USD 0.3 billion of borrowings under a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan, were raised. This resulted in a total gross debt of USD 3.5 billion. These outstanding borrowings of the Alcon legal entities were recorded in the balance sheet and financing cash flow from discontinued operations. Prior to the spin-off, through a series of intercompany transactions, Alcon legal entities paid approximately USD 3.1 billion in cash to Novartis and its affiliates.
At the April 8, 2019 Distribution, the fair value of the distribution liability of the Alcon business amounted to USD 23.4 billion, a decrease of USD 3.0 billion from March 31, 2019. As mentioned above, prior to the spin-off, through a series of intercompany transactions, Alcon legal entities incurred additional net financial debt and paid approximately USD 3.1 billion in cash to Novartis and its affiliates. This additional net debt and transactions resulted in a decrease in Alcon’s net assets to USD 20.0 billion at the date of the Distribution of the dividend in kind to Novartis AG shareholders on April 8, 2019. The distribution liability at April 8, 2019, remained in excess of the then-carrying value of the Alcon business net assets.
Certain consolidated foundations own Novartis AG dividend-bearing shares restricting their availability for use by the Group. These Novartis AG shares are accounted for as treasury shares. Through the Distribution, these foundations received Alcon Inc. shares representing an approximate 4.7% equity interest in Alcon Inc. Upon the loss of control of Alcon Inc. through the Distribution, the financial investment in Alcon Inc. was recognized at its fair value based on the opening traded share price of Alcon Inc. on April 9, 2019 (a Level 1 hierarchy valuation). At initial recognition, its fair value of USD 1.3 billion was reported on the Group’s consolidated balance sheet as a financial asset. Management has designated this investment at fair value through other comprehensive income.
The total non-taxable, non-cash gain recognized at the distribution date of the spin-off of the Alcon business amounted to USD 4.7 billion consisting of:

(USD millions)
April 8,
2019
Net assets derecognized 1
-20 025
Derecognition of distribution liability
23 434
Difference between net assets and distribution liability
3 409
Recognition of Alcon Inc. shares obtained
through consolidated foundations

1 273
Currency translation gains recycled into the
consolidated income statement

123
Transaction costs recognized in the consolidated income statement
-114
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
 1  See Note 10 for additional information.
For additional disclosure on discontinued operations, refer to Note 10.
Innovative Medicines – acquisition of IFM Tre, Inc.
On May 7, 2019, Novartis acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3 antagonists. The NLRP3 antagonists portfolio consists of one clinical program and two preclinical programs: IFM-2427, a first-in-class, clinical-stage systemic antagonist for an array of chronic inflammatory disorders, including atherosclerosis and nonalcoholic steatohepatitis (NASH); a preclinical-stage gutdirected molecule for the treatment of inflammatory bowel disease; and a preclinical-stage central nervous system (CNS)-penetrant molecule.
The previously held interest of 9% was adjusted to its fair value of USD 33 million through the consolidated income statement at acquisition date. This remeasurement resulted in a gain of USD 14 million. The fair value of the total purchase consideration for acquiring the 91% stake Novartis did not already own amounted to USD 361 million. The amount consisted of an initial cash payment of USD 285 million, and the fair value of the contingent consideration of USD 76 million due to the IFM Tre, Inc. shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 355 million, mainly intangibles, and goodwill of USD 39 million. The 2019 results of operations since the date of acquisition were not material.
Innovative Medicines – acquisition of Xiidra
On May 8, 2019, Novartis entered into an agreement with Takeda Pharmaceutical Company Limited (Takeda) to acquire the assets associated with Xiidra (lifitegrast ophthalmic solution) 5% worldwide. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters the Novartis front-of-the-eye portfolio and ophthalmic leadership. The transaction closed on July 1, 2019. The purchase
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price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The fair value of the total purchase consideration was USD 3.7 billion. The amount consists of an initial cash payment of USD 3.5 billion, and the fair value of the contingent consideration of USD 0.2 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
The purchase price allocation resulted in net identifiable assets of approximately USD 3.6 billion, consisting mainly of intangible assets of USD 3.6 billion, and goodwill amounted to approximately USD 0.1 billion. In 2019, from the date of acquisition, the business generated net sales of USD 0.2 billion. Management estimated that net sales for the entire year of 2019 would have amounted to USD 0.3 billion, had the business been acquired at the beginning of the 2019 reporting period. The 2019 results of operations since the date of acquisition were not material.
4. Summary of equity attributable to Novartis AG shareholders
Number of outstanding shares (in millions)
Issued share capital and reserves attributable to Novartis AG shareholders (in USD millions)
2020
2019
H1 2020
H1 2019
Balance at beginning of year
2 265.0
2 311.2
55 474
78 614
Impact of change in accounting policy 1
3
Restated equity at January 1
55 474
78 617
Shares acquired to be cancelled
-32.8
-2 819
Other share purchases
-1.6
-1.6
-150
-153
Exercise of options and employee transactions
14.7
5.5
823
200
Equity-based compensation
10.6
9.5
365
447
Shares delivered to Alcon employees as a result of the Alcon spin-off
0.3
29
32
Taxes on treasury share transactions 2
30
-185
Increase of treasury share repurchase obligation under a share buyback trading plan
-2 289
Dividends to shareholders of Novartis AG
-6 987
-6 645
Dividend in kind to effect the spin-off of Alcon Inc. 3
-23 434
Net income of the period attributable to shareholders of Novartis AG
4 043
8 565
Other comprehensive income attributable to shareholders of Novartis AG
176
-667
Transaction costs, net of taxes 4
-253
Impact of change in ownership of consolidated entities
-3
Other movements 5
9
13
Balance at June 30
2 289.0
2 291.8
53 812
51 426
 
 1  In H1 2019, the impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases.
 2  Included in H1 2019 is a USD 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings.
This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
 3  Fair value of the dividend in kind of Alcon Inc. shares to Novartis AG shareholders (see Notes 2 and 3 for further details).
 4  In H1 2019, Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.
 5  Impact of hyperinflationary economies
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5. Financial instruments
Fair value by hierarchy
The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of June 30, 2020 and December 31, 2019. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2019 Annual Report, published on January 29, 2020.
Level 1
Level 2
Level 3
Total

(USD millions)
Jun 30,
2020
Dec 31,
2019
Jun 30,
2020
Dec 31,
2019
Jun 30,
2020
Dec 31,
2019
Jun 30,
2020
Dec 31,
2019
Marketable securities
Debt securities
24
24
24
24
Fund investments
33
37
33
37
Total marketable securities
33
37
24
24
57
61
Derivative financial instruments
136
102
136
102
Total marketable securities and derivative financial instruments
33
37
160
126
193